Originally posted on Mark On Solutions by Matt Davis.
The insurance industry uses the term “risk appetite” to describe the level of risk that an organization is willing to accept. An essential first step in managing corporate security, and resiliency, has to do with determining your firm’s risk appetite.
Risk appetite is defined as the amount of risk exposure that an organization is willing to accept as a normal course of business. Tolerance for risk exposure can vary greatly from one company to another, and among different industry segments.
As a precursor to establishing an effective risk management program, it’s essential for a firm to determine its risk appetite. This can be done using a baseline analysis that accounts for a combination of threats, vulnerabilities, consequences, and readiness.
It’s interesting to note that often a company’s appetite for risk doesn’t match its actual exposure. In other words, companies are often unaware that their risk exposure is significantly greater that their actual tolerance for that risk.
Assessments, training, and exercises are all excellent ways to expose those gaps and establish focus points for adjusting your firm’s security posture to align with its risk appetite.
Originally posted on BlueDrop by Colin McCabe.
Whilst risk management played a role in business prior to the financial crisis of 2007-2008, it didn’t have quite so much of a major importance as it does today. These days, if a company doesn’t find a way to prevent or mitigate risk then it can really struggle to get back on track. Unexpected risks can shut down a business for days and sometimes even longer, many never even re-open.
Despite the scary facts, it is thought that 75% of businesses today still don’t have a risk management plan in place. Whilst there are many forms of risk management insurance can be one the most important as it helps to prevent losses, and as we all know fewer losses mean higher profits.
How we can help your Risk Management
At Bluedrop Services risk management is taken seriously and we endeavor to meet our client’s requirements to achieve maximum profitability with minimum risk to them. We have implemented a specialist risk management department which will strive to succeed in aiding clients in the process of risk management and how to reduce risk.
Risk management is the identification, assessment, and prioritization of risk followed by coordinated and economical application of resources to minimize, monitor, and control the probability of any unfortunate events, which can occur at any time. The objective of risk management is to assure a company/task does not deflect from achieving its goals.
Risks can come from various sources depending on your type of business, these can include; road risk, potential failure of projects, legal liabilities, financial risk, accidents, deliberate attack, incorrect or no process and procedures, and poor health & safety policies. All of which could have a serious financial impact on a business or body.
Where should you focus your Risk Management?
Emerging companies should focus in particular on employer’s liability, data privacy and cyber liability, errors and omissions liability, directors’ and officers’ liability (D&O) and, depending on the number of employees, fiduciary liability and employment practices liability policies. By identifying and assessing risk early this will reduce the chance of a potential financial impact on a business.
How to reduce your risk
Strategies to manage risk typically include avoiding the risk, reducing the negative effect or probability of the threat, transferring all or part of the risk to another party, and even retaining some or all of the potential or actual consequences of a particular risk.
Although risk management has no measurable improvement on risk there is an increase in confidence in the decisions made by risk management strategies.
Simple risk assessments can be completed to reduce any type of risk, these should include:
1. What is the threat/risk
2. Who is exposed and why
3. Current process
4. What can be done to reduce the exposure
5. Documentation of the above
Sensible risk management is about taking practical steps to protect people from real harm and suffering not bureaucratic back covering. Taking a sensible approach to risk management is about ensuring the safety of employees and public, learning & understanding by all and responsibility of risk by companies.
Falling in the middle of the risk management cycle (after developing risk appetite and tolerance and identifying, but before assessing and analyzing risks), the organization then must identify who will “own” or be responsible for a particular risk.
Although the exact definition of what a risk owner is will vary depending on the organization, it can generally be defined as a person or persons responsible for the day-to-day management of a risk. (I will talk later about when to assign a risk owner…)
Assigning an owner for these risks is important for a few reasons…
One, a designated risk owner ensures someone in the organization is accountable for the risk. If there is not one person or a group charged with managing a risk, then by default, the entire organization will own the risk, and therefore it is highly likely the risk will fall through the cracks (a/k/a nothing will be done). Having a risk owner is an important step toward ensuring that a response plan is developed and acted upon in a timely manner.
Two, risk ownership is one way for executives to not only hold individuals accountable for risks, but to show their support for ERM in general.
The third reason for appointing a risk owner is to ensure that the ERM function does not own risks.
It’s important to understand that ERM does not actually manage risks, which is a common misnomer. The role of ERM is to help facilitate a process for identifying, assessing, and analyzing risks, and to ensure that executives and other key players have the information they need to make risk-informed decisions.
The only exception to this rule is if the risk function is responsible for insurance, business continuity, or similar program. This situation applied to me when I was Director of ERM for a large Florida-based property insurance company…in this case, it was only natural for my area to be responsible for these risks. In fact, business continuity can very closely integrate with ERM, so it made perfect sense to have them under a single manager.
In what circumstance will the organization need to assign a risk owner?
Not every identified risk will require an owner. In fact, if your organization has thousands of risks identified through a bottoms-up approach, assigning a risk owner for each one will overwhelm you and your team and nothing will get done.
Instead, start with the most critical risks and then consider adding more once a workable, sustainable process is in place.
Iconic cosmetics brand Estee Lauder for example has 46 critical corporate risks where an owner has been assigned. These particular risks met several guidelines which exceeded their respective risk tolerance or could cross this threshold in the near future.
In short, a risk owner needs be assigned for risks that exceed tolerance levels that were set earlier in the risk management cycle. However, that doesn’t mean risks that are within tolerance levels should be ignored…accepted risks have to be monitored as well.
More specifically, the cumulative result of accepted risks and the inter-dependencies of risks have to be carefully considered as well. If Risk A occurs and could trigger Risk B, a risk owner should be appointed and action taken, especially if Risk B is considered critical and falls outside of tolerance levels should it occur.
You also don’t need me to tell you that things are always changing. Perhaps tolerance levels change down the road or the risk itself changes. Of course, this certainty that things change is why I’m a firm believer in having a maximum time limit for a review of both low and accepted risks to ensure nothing is being overlooked.
Risk Ownership: Key Considerations, Challenges, and Options
I could probably write an entire article or even an eBook on how an organization could go about assigning an owner for a particular risk. Before getting into different options though, there are a few key considerations and challenges I should discuss first.
- Ensure there are clear definitions on roles and responsibilities in place before proceeding any further…this is one of the first and most important considerations when it comes to choosing a risk owner. As explained by Chris Corless in this article in Strategic Risk, it’s important for everyone involved to have a clear understanding of expectations when someone accepts the role of risk owner.
- Properly train on risk owner responsibilities and how they need to manage and report the risk. Think about it this way – your organization wouldn’t roll out a new time management system and not train employees on how to use it, right? Risk ownership is no different…
- Maintain consistent language throughout the firm regarding risks. Frank Fronzo of Estee Lauder explains how the company has a dictionary of terms it uses to ensure everyone is speaking the same language and stays on the same page.
One of the most common challenges organizations face when assigning a risk owner is the tendency to give it to the highest accountable person in the organization. While this is okay for risks linked to the strategic plan, the fact is that executives and other leaders simply do not have the time to take many of these risks on. In situations like this, the individual may delegate the responsibilities of owning a particular risk to someone else with time to perform them.
In cases like this, the senior-level person becomes a risk “custodian,” meaning they still have an interest in the risk but do not fulfill the day-to-day responsibilities of an owner.
And as I mentioned earlier, risk ownership should extend down the organization chain for a couple of reasons. One reason is limited time on the part of executives and other leadership. Second to that, appointing a mid-level manager as a risk owner can play a huge part in cultivating a positive risk culturethroughout the entire organization.
Another challenge many organizations face when assigning and managing risk owners is the tendency for risk management activities to fall back within organizational silos. If this type situation occurs, the case can be made that you’re not really practicing ENTERPRISE risk management.
(Click here to learn more about risk management that occurs within a singular business unit vs. a top-level, enterprise-wide process.)
To address this challenge or avoid it altogether, a risk information system should be used that contains details about all risks the organization is managing, who the owner(s) of a particular risk is, recent activities and more. This system should be accessible by all risk custodians and owners…
During a recent conversation, a fellow risk professional mentioned that his organization uses Archer, but other commonly known software tools organizations commonly use include Logic Manager, MetricStream, CURA, and Sword Active Risk. But there are plenty of other options out there, like Aviron Financial Solutions, Audit Comply, and Vose Software, to name a few…
When developing the process and choosing risk owners, company culture and the accountability structure of the organization will play a huge role…
Broadly speaking, risk ownership can be assigned to an individual or a designated risk committee.
Individual risk owner
If your organization has diverse functions and a weak collaborative culture, you will most certainly want to go with an individual risk owner. This individual (…and the risk custodian if applicable) will be the oneperson held accountable for the management of the risk they are charged with handling. I mentioned this in a way in the beginning of this article…having an individual risk owner is not only a way to hold someone accountable for a risk, it is also a way for executives to demonstrate how important they view ERM.
When assigning an individual to be the owner of a particular risk, it’s vitally important they have decision-making authority and the ability to allocate financial and human resources for the risks they are charged with managing.
Another point to consider when determining an individual risk owner is assigning accountability by position rather by name. (I personally really like this concept!) This is one key point of how Estee Lauder determines the proper owner. Assigning accountability this way ensures risks are continuously managed, even if the individual person moves on from their position.
One situation where an additional person may be involved with managing a risk but not be considered group or committee ownership is when a department is impacted by a risk but another department is better suited to manage the risk. In cases like this, co-ownership and coordination between the departments will be needed, but in the end, one person will still be responsible for monitoring and managing the risk.
For organizations with a strong group or collaborative culture, group ownership of risk(s) may be the way to go. This group can consist of individuals from across the enterprise, which of course can be a positive in that it brings together different perspectives. Specific action-items can be assigned based on responsibilities of individuals within the group.
However, one big drawback of group or committee ownership is that it is hard to hold the entire group accountable. Absent any strong oversight from a management-level risk committee, the group can easily end up pointing fingers when things go awry or otherwise sit around and talk about a risk without ever taking any action.
These management-level risk committees can benefit the organization in many ways, including building a positive risk culture. Click here to learn more about oversight…
As you can see, your organization’s culture is a key part of determining the best model for assigning risk owner(s).
A Word of Caution
Developing your organization’s risk ownership process will take time and require a bit of trial and error, and above all, patience. Long before any risk owners begin their work and report their activities into a software system and to executives, definitions on roles and responsibilities and a consistent language must be developed, plus training for everyone involved.
This, of course, is all in addition to other phases of the risk management process like identification, risk assessment, setting risk appetite and tolerance, and more. But risk ownership should be embedded throughout the process of managing risks; after all, the risk owner will be your main contact for a risk. And by all means, don’t overlook the relationship factor and how it can support ERM success.
If done properly though, having individuals throughout the organization “own” and therefore be responsible for certain risks will go a long way to building a long-term, value-driven ERM program.
Source: ERM Insights
Women in the workplace encounter particular safety risks that need to be addressed, including workplace violence and ill-fitting personal protective equipment, according to safety experts.
For example, women in industries such as health care and retail are significantly impacted by workplace violence, according to safety experts participating at the American Society of Safety Professionals’ Women’s Workplace Safety Summit in Rosemont, Illinois, on Monday.
According to the U.S. Bureau of Labor Statistics, 16,890 workers in private industry experienced trauma from nonfatal workplace violence in 2016; 70% of those employees were female, and 70% worked in the health care and social assistance industry.
Diana Stegall, ASSP president-elect and senior loss control consultant for workers compensation insurer United Heartland, otherwise known as United Wisconsin Insurance Co., a member of AF Group, said she sees claims data about the workplace violence injuries that happen in the health care and social services sector.
“Many times when we think about workplace violence, we think about it in terms of active shooter,” she said. “But when you look at the injuries that actually happen, many times it’s those people who were providing care. They get injured in providing care. It’s a huge issue.”
Meanwhile, 500 U.S. workers were workplace homicide victims in 2016, and 31% of them were working in a retail establishment, according to BLS data.
“We know about health care, but we sometimes forget about the retail portion where workplace violence takes place and the late-night gas and go’s,” said Sally Smart, technical safety specialist at W.W. Grainger Inc. based in Janesville, Wisconsin. The health care and social services and retail industries “are the ones who have unfortunately the most experience with workplace violence.”
One solution that emanated from a discussion group at the summit focusing on the workplace violence issue was to share the stories of the women impacted by workplace violence to raise awareness of the issue, Ms. Stegall said.
“Sometimes we become numb when we see one headline after another after another,” she said. “How does this really impact us as an organization? How does this impact us personally? What are those stories that show this can happen to you? It can and in many cases already is happening, and you may just not be aware of it.”
ASSP will also gather data on the workplace violence issue, including underreported verbal altercations, to create guidance documents or toolkits for employers to help them improve or develop their workplace violence prevention programs, Ms. Stegall said. The documents would address key issues such as safety culture, accountability and how to engage workers in the process, she said.
A separate group of experts participated in a discussion about another safety exposure for women in the workplace: ill-fitting personal protective equipment, or PPE.
“Ill-fitting PPE leads to increased hazards, increased injuries, and also affects productivity because of those two things, as well as (having) a psychological impact,” Ms. Smart said. “If you put a women in PPE and it doesn’t fit her … do they feel unprotected because it doesn’t fit right? Or more importantly, do they not wear it because it doesn’t fit? There are manufacturers who do make specific personal protective equipment for women, but not many. Sometimes employers don’t understand that. They sometimes go with one size fits all and it doesn’t.”
“With any of these issues, awareness is a big piece,” Ms. Stegall said. “A lot of the PPE that’s out there is developed for males based on data gathered from the military from the ’50s. Men in the military look a lot different than those outside of that demographic. Quite frankly, if we get (PPE) that’s more gender-diverse, it’s going to help men as well who don’t fit the standard ‘body type,’ because we’re not all the same size. How do we get the word out? Also, how do we let manufacturers know that just because we’re women doesn’t mean we want pink safety shoes and pink personal protective equipment?”
The summit also focused on the leadership of women in the occupational health and safety industry, with a discussion group highlighting the need for additional data on the issue and identifying potential sources of data as well as developing a problem statement, said Deborah Roy, corporate director of health, safety and wellness at L.L. Bean Inc. in Portland, Maine, and senior vice president on the ASSP board of directors.
“We feel there needs to be more of a baseline to begin work,” she said. “We need to identify between men and women what their leadership opportunities are, and we don’t have that data right now.”
“One of the gaps we identified was education, so we talked about what kind of training in leadership could be offered for women in OSH,” Ms. Roy added. “Quite honestly, we all acknowledged some of those things could be done for men as well.”
Have you ever been in the room when someone suggested doing scenario analysis? Did you see everyone in the room cringe at the thought?
I have, and I felt pity for the person who made the suggestion.
Most likely, everyone in that room has gone through the endless “what if” scenario analysis that takes 4 or 5 hours and ends without any solid conclusions.
But if done correctly, scenario analysis can be extremely effective in its support of decision-making.
Personally, I prefer to use the term “scenario planning” instead of “scenario analysis” for the simple reason that “scenario analysis” sounds painful and very computer-driven. On the other hand, scenario planning is human-based and sounds like the effort and results will be useful for the participants and the final audience.
At its core, scenario planning is a “creative and structured process to guide deliberate thinking about risk,” as defined by Aries de Geus in his book The Living Company. De Geus, as the corporate planning coordinator at the Royal Dutch/Shell companies, used scenario planning and described its effectiveness in this Harvard Business Review article…from 1988!
So, with all that being said, how can scenario planning support decision-making?
1. Tests and validates assumptions being made as part of the planning process
When corporate planning occurs, whether called strategic planning, annual planning or something else, management believes that a certain set of assumptions will become true. How many times has management stated an assumption as fact? But what if they are wrong?
2. Provides management with the tools to proactively prepare
Risk management activities are supported by scenario planning, which looks at possible events. While most people inherently want to say the most positive event will occur, proactively preparing for events is always better than being reactive. Being proactive rather than reactive is a key difference between traditional risk management and ERM.
3. Encourages innovation
Scenario planning helps people to think outside of their comfort zone, taking next steps to a big innovative moment. Sometimes that innovation is triggered by the proactive preparation. An organization that is constantly innovating is a step ahead of its competitors.
4. Gives the organization a competitive advantage
Being prepared and innovative are two enormous parts of a competitive advantage. What company would not want that?
Management improves its way of making decisions simply by using scenario planning. It will take time for this way of thinking to take hold, but it stands to reap immeasurable benefits in both the short- and long-term.
After all, de Geus believes that scenario planning is the reason there are companies that last for 200 and 300 years. From the same Harvard Business Review article,
Sociologists and psychologists tell us it is pain that makes people and living systems change. And certainly corporations have their share of painful crises, the recent spate of takeovers and takeover threats conspicuously among them. But crisis management—pain management—is a dangerous way to manage for change.
Once in a crisis, everyone in the organization feels the pain. The need for change is clear. The problem is that you usually have little time and few options. The deeper into the crisis you are, the fewer options remain. Crisis management, by necessity, becomes autocratic management. The positive characteristic of a crisis is that the decisions are quick. The other side of that coin is that the implementation is rarely good; many companies fail to survive.
The challenge, therefore, is to recognize and react to environmental change before the pain of a crisis. Not surprisingly, this is what the long-lived companies in our study were so well able to do.
All these companies had a striking capacity to institutionalize change. They never stood still. Moreover, they seemed to recognize that they had internal strengths that could be developed as environmental conditions changed.
Don’t you want your organization to be around for 300+ years? Embedding scenario planning into management’s decision-making processes will help make that happen.
Author: Carol Williams
Source: ERM Insights