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Spread risk awareness by turning others into risk managers
July 28, 2014
One sign of a successful risk manager is the existence of a culture of risk awareness in his or her organization. Such a culture generally leads to greater appreciation of the value of managing risk, improvements in safety, lower claims, reduced cost of risk and better financial results.
What business wouldn’t want to reap those benefits? The trick to a risk-aware culture is to create it. The late Douglas Barlow, a Canadian whom many consider as the first business executive to adopt the title of risk manager, back in the early 1960s, said: “All management is risk management.” I believe he was correct, but sadly not all managers think that way. That is why a risk-aware culture is important to create. If that were easy, every organization would already have such a culture. Fortunately, there are ways to improve the odds.
Risk managers are in a position to influence decisions in virtually all areas of their firms – if their voice is heard. To have a voice in those decisions, a risk manager needs to be able to communicate clearly with all levels – from the boardroom to the mailroom and points in between.
Here are some ways to create a risk-aware culture:
- Know your business. No matter what industry a risk manager is in, a fundamental part of the job is to understand the dynamics of the business – how it works, what it needs to operate and the obstacles it faces. Take time to cultivate knowledge, ask questions and seek answers.
- Earn the trust of senior management. A risk manager’s point of view, combined with a thorough understanding of the organization’s objectives, can contribute heavily to achieving business goals. Intelligent risk management isn’t about saying “no”; it’s about finding creative ways to say “yes” to taking risks. Trust is earned over time, by consistently offering solutions to challenges.
- Turn colleagues into risk managers. Alliances are necessary for risk managers because risk management departments are relatively small. Aon Risk Solutions’ 2013 Global Risk Management Survey indicates that, for more than 70% of organizations, the risk management department has six or fewer employees. That means most organizations may have only half a dozen employees responsible for loss control and risk-financing programs designed to protect tens of thousands of lives and billions of dollars of revenue. Recruiting allies to that effort not only makes the task less daunting – it also improves the chances of success.
- Communicate wins and losses. To help people understand the value of risk management and, even more importantly, how to support it, risk managers need to communicate what they do – when losses occur and when losses are prevented. To be sure, managing risk is a collaborative effort no matter how large or small an organization may be. Maintain alliances by keeping collaborators informed of how they’re helping the overall effort.
Many organizations utilize chargebacks, so that losses are allocated to the departments or units where they occur. That is a good practice and it provides a financial disincentive to ignore loss costs. But it’s only one way to get managers’ attention. Risk managers also should provide stories and examples that can be shared colleague to colleague, in a way that is relevant to colleagues’ areas of responsibility.
For example, if a retail organization’s business unit managers are focused on hitting sales numbers every quarter, the risk manager who understands the business and its loss drivers can help connect the dots between risky in-store practices and how losses create a drag on sales. Preventing the losses therefore helps keep store revenue flowing – a message that unit managers will want to hear.
Successful risk managers are able to spread risk awareness and mitigation throughout their organizations. They do this by being strong communicators and team-builders. It can’t be done while sitting in an office or behind a desk. Risk managers have to get out and talk to people, learn what they do and in turn educate them about what risk management does. The larger and more distributed the organization is, the more important it becomes for the risk manager to get out into the field and visit the operating centers.
A risk manager for a large multinational company recently told me, “I’ve seen badly run organizations with good risk management departments, but I’ve never encountered a well-run organization with a bad risk management department.” He’s right, for a very good reason: risk management has a critical role in organizational success.
Regis Coccia is an insurance journalist and content strategist. His columns on insurance and risk topics appear periodically on Fast Fast Forward.
The views expressed in this column are the opinions of the author and do not necessarily reflect the opinions of XL Group.