What’s your Risk exposure?

The need for risk management has always been there, however the global economic crisis has made companies more aware of the impact of risks that aren’t managed effectively can have on a business. Having an effective risk management programme is important as companies deal with increasing complexities within their business, including globalisation, and additional demands for transparency from stakeholders such as investors, customers, partners, media, auditors, and even employees.

Q: Can it reduce the incidence of fraud or nip it in the bud?

A risk management programme can provide visibility and proactive management of key risk indicators that could be an indication of fraudulent activities. For instance, monitoring user access trends across a key financial system to identify abnormal access patterns could be an indicator of fraudulent activities.

Q: Are companies willing to spend now on risk management software or cutting back in light of the global scenario?

With the increasing importance on having an effective risk management programme, companies are definitely willing to invest in technologies and solutions that can help them manage and monitor their enterprise risks. The right enterprise risk management solution can help customers proactively mitigate risks, and provide greater risk-intelligence across their strategic objectives, which are areas where companies are very focussed today.

Q: Why do companies fail to see risks as they grow? What do they take for granted?

Often, risk management programmes simply target a single type of risk, such as a financial risk or an IT risk. Without an ability to look across all types of enterprise risks, and proactively monitor these risks on a continual basis, the overall risk exposure increases, generally without the company even knowing.

Many companies take overall risk management for granted, as they believe they haven’t experienced a significant risk event or a loss from a risk. Many feel, becuase of this, that they may not need risk management because they haven’t suffered a loss. In fact, these companies usually have all experienced a loss event, they simply are not aware of this, because they don’t have the visibility gained through monitoring and managing risks across the enterprise.

Q: Could risk management strategies have saved companies like BearStearns or Lehman Brothers from going under?

An enterprise risk management programme provides an ability to proactively identify and mitigate risk before a significant loss event occurs. Many companies manage risk reactively, and by doing so, only identify risks after a loss event has occured. By taking a proactive approach to mitigate risks before a loss occurs, companies can take strategic actions to ensure that they reduce or sometimes alleviate altogether the impact or loss caused by a risk.

Q: Is Caribbean business, particularly Trinidad, in need of risk management?

All businesses are in need of an effective risk management programme, regardless of size, location, or industry.

Q: What do you look for? What are the indicators for finding deficiencies in risk management?

An effective risk management program should include the ability to aggregate and manage multiple types of risks across all business units. Often, risks are managed in a solid, fragmented manner, or a risk management programme often only addresses a single type of risk, such as financial risk, or regulatory risk. These deficiencies in a risk programme leave the company exposed, which negatively impacts performance and competitive advantage.

Q: From your workshop, what’s your sense of risk management in TT?

With the recent turn of events in Trinidad, companies are going to need to have closer and tighter control around segregation of duties for employees as well as business processes that can be easily reviewed and changed to adjust to market changes and to mitigate risk- and be compliant with new government regulations locally and at a global scale.

Now companies have to work in a local matter but with a global view of the business if they want to protect the organisation from changes and challenges like the ones we see today in the marketplace.

Q: Can you really measure performance based on risk management strategies?

Yes, risk management can be aligned with strategy management, which allows companies to identify, manage, and mitigate specific risks that might keep them from achieving their strategic objectives. For example, when you have a strategic initiative around international expansion, there are very clear Key Performance Indicators (KPI’s) aligned to this objective. However, you also can identify and link Key Risk Indicators to the KPI’s which allows you to directly manage the risks across the strategic initiative. This might include the risks of new competitors, additional supply chain partners, or an increased regulatory environment.

This critical capability allows a company to understand and proactively manage the inherent risks with their key corporate strategies, and by doing so, companies can actually increase their performance.

Q: Don’t companies really need risk management?

Yes, all companies need risk management. An effective risk management programme that aligns, monitors and manages enterprise risks is necessary for companies to protect their business value, and also increase competitive advantage and performance compared to other companies that are not effectively managing risks.