May 14, 2013 – There’s no template for ERM across industry verticals, but one well-respected global risk manager gave a checklist of some of the top threats that every enterprise should consider.
Christoph Schwager, chief risk officer at military contractor EADS, spoke Tuesday as part of a global set of presentations in conjunction with the second-annual World Risk Day. Schwager’s presentation was entitled “Developing a Holistic Approach to Risk Management” and scrolled over the eight primary risks that tremble beneath all businesses.
While stressing governance for ERM and organizational data practices, and the development of risk management professionals internally, Schwager says a critical part of achieving a state of “manageable risks” is realizing your organization is “never perfect.” In that ongoing risk assessment process – even mid-project – Schwager says the cultural shift of risk as integral to business may be the most difficult.
“The trick is, actually, to move the risk function as close as possible to the business in order to have a really effective risk culture and management. And that can sometimes be painful in today’s risk environments,” Schwager says.
Making that enterprise risk management and process path less painful includes recognizing these eight threats inherent to all ERM practices:
- Interface Risk: Acting like an umbrella over all risk practices is the need for solid, ongoing communication. The lack of communication across departments can spring a leak in any risk program, says Schwager. “People don’t talk to each other enough, which can unfortunately trigger lots of other types of risk.”
- Too Much Information: A mounting problem in this data-driven business environment, the overflow of risk potentials can take the gravity away from big, primary threats to your organization, to the point where Schwager says you “can’t see the forest from the trees.”
- Too Little Information: Clearly, missing information means less insight into potential threats (and opportunities, for that matter). This also relates to having too much information in that volumes of data can give the false sense that all valuable ERM information is in place, Schwager says.
- Organizational Structure: As organizations grow through new projects and products, and from M&As – all the while facing economic and regulatory pressures – the resulting complexity can dash even solid risk planning. In addition, this complexity can lead to the confusion of internal processes and nurturing of silos. This isolates or obscures risks, sometimes until they become damning to wider business goals.
- Over Confidence: Even organizations that are good at handling risk at the start can develop what Schwager called a “safe harbor feeling.” With a plan in place, risk managers may miss new and emerging risks or put off daily monitoring while dealing with other projects.
- Confirmation Bias Trap: It’s easy to pick out the risks that we like, says Schwager. Furthermore, he says there can be a behavioral reaction to staring down risks, both concrete and abstract, that has a dulling effect across the enterprise: “Let’s face it, who wants to look at risks all of the time?”
- Early Warning Signals: You may spot a threat at the inception of a business plan or project. At this point, there is a tendency to see the risk as “artificial” and then forget about it.
- Roots and Past Threats: The tendency of the risk manager is to “look ahead and plan for the future,” which is necessary, but shouldn’t come at the absence of history, Schwager says. Finding the roots of past risks can be difficult but valuable in terms of organizational processes and pinpointing other murky planning problems.
For more on World Risk Day, including presentations by Bechtel, the New York State Department of Transportation and others, click here.
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