Managers in every organization are responsible for achieving the objectives identified in their organizations’ strategic plan. We commonly think of these as positive outcomes, such as increasing sales, maximizing profits, expanding market share, and the like.
But outstanding leaders know that there are threats as well as opportunities in the environment, and they work to manage these risks just as actively as they seek to maximize gains. For industry-leading organizations, avoiding or minimizing the costs of foreseeable risks is an integral part of the total performance of the organization. Maximizing gain and minimizing risk are two sides of the same coin.
The risk management practices of industry leaders deserve attention. Here are some of the top practices:
1. Risk Management is Integral to the Strategic Plan
The most important thing effective leaders do to manage risks is to make it an explicit part of the strategic plan, and demand buy in from all levels of the organization. Risk management becomes a systematic effort that is pervasive through all operating units, from sales to marketing, supply management to manufacturing, and internal controls. It is given a priority commensurate with its importance, right in line with market expansion or critical support functions. All these functions are explicitly targeted for investment and effort.
To get and retain the visibility it deserves, industry leading organizations assign responsibility for risk management to a C-suite manager, and make it part of that role’s evaluation. In order for the risk management function to matter to an organization, it has to matter to someone whose job is defined by it. This helps to ensure that there is accountability for the performance of risk mitigation tactics and consistency in implementation.
2. Risk Management is a Planned Activity
Good leaders understand that the key to success is channeling the efforts and resources of every unit in the organization to the achievement of its strategic objectives. They use the strategic planning process to define measureable outcomes, but also to communicate organizational priorities to every level. This general approach has to be adapted to the risk management function.
At the highest level, the person in the role responsible for risk management has to initiate the process of defining risk mitigation objectives. This is based on a thorough, objective risk assessment process that occurs in every operating unit. Although the details will vary depending on the organization, there are some basic concepts that are common to all organizations:
Internal controls have to be reviewed for their risk exposure and ability to mitigate those risks. Obvious places for control reviews are in financial, accounting, and IT functions, but these functions permeate the organization from sales to C-suite. … Continue reading