One of the big differences between traditional risk management and ERM is the role risk plays in the organization.
I briefly discussed this point at a high-level in my popular article linked above. And while the point of disjointed vs. embedded in culture and mindset is connected to other differences mentioned in the article, the issue of how risk fits into the culture of the organization warrants a more in-depth review.
Any organization is going to manage risks to one extent or another…
What often happens though is risk management activities are “disjointed” or ad-hoc with no rhyme or reason or connection to strategic objectives and other business units.
For example, the marketing area embarks on a project to accomplish a certain objective and maybe takes a few moments to identify any risks to the project. Another example is the organization reacting to some sort of negative event like a product failure and having to identify action steps and necessary people instead of having a prepared plan of action in the event a product failure occurs.
Ad-hoc or one-off thoughts about risk cause risks to be missed, create new risks for other areas of the organization, or end up duplicating effort, wasting the organization’s resources.
A business unit may involve the risk management or ERM area sporadically…
But instead of adding value to ensure business units are making wise decisions in pursuit of strategic objectives, the whole endeavor is really a “CYA” exercise on the part of managers and other stakeholders. This sporadic discussion about risk also makes it impossible to understand the connections between risks.
Instead of these random discussions, a key goal of enterprise risk management is to embed the idea of risk in the very fabric of the organization’s culture and mindset.
In order to develop an ERM process that addresses risks to strategic objectives and uncovers opportunities, the idea of risk has to automatically be a part of business conversations at all levels of the company.
This may sound a little crazy, but the eventual goal of an ERM professional or internal “consultant” is to work ourselves out of a job.
What this means is risk becomes so embedded within the culture and mindset of the organization that it becomes just another part of the business conversation and decision-making process…no separate meetings or callouts needed.
By extension, another benefit of this naturally occurring discussion about risk means that the very idea of risk no longer carries a negative connotation.
Taking this more proactive approach to risk management instead of the disjointed, ad-hoc approach from earlier also means the organization’s leaders, managers, and employees are also discussing opportunities that exist to support strategic objectives.
How can ERM professionals help their organizations embed risk into its culture and mindset?
Like I mentioned earlier, the whole goal of the ERM professional should be to work ourselves out of a job (…as crazy as that sounds).
The end result is that everyone from top leaders in the organization all the way down to business unit managers and employees has the tools and knowledge to identify, assess, and manage risks.
Besides the right tools and knowledge, leadership has to empower those in the “trenches” if there’s any chance of embedding a risk mindset throughout all levels of the organization.
Empowerment in this sense also means accountability – not only do people in the organization need knowledge, tools, and the encouragement to include risk in their decision-making, they also need to be held accountable for those decisions.
For a high-level overview of developing this culture within your organization, I recommend taking a look at another one of my prior articles – 5 Critical Steps to Cultivating a Positive Risk Culture.
What methods have you used to ensure risk is embedded in the culture and mindset of your organization?
Share your thoughts in the comment field below or join the conversation on LinkedIn…
I realize that issues around risk culture and leadership are one of the hardest parts of having a solid, value-add ERM program. Despite the best efforts of ERM professionals, ongoing support and leadership from top executives, or the “tone at the top,” is the lynchpin of achieving this goal.
If your organization is struggling with embedding risk in culture and mindset and would like an outside perspective to help you get unstuck and make progress effectively and efficiently, let me know you are interested in working with me, whether consulting or 1-on-1 ERM coaching.
It only takes a minute to add your name…and when I have space available to take on new coaching and consulting clients, I will reach out.
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