A reader sent me a question about identifying risks to initiatives…
More specifically, the reader wanted to know how she could ensure that risk identification focused on objectives doesn’t lose sight of risks that may be associated with initiatives.
Before going any further, I want to provide a couple of quick definitions:
- Objectives – a goal, or what the organization would like to accomplish within a specified time frame.
- Initiatives – projects and tasks undertaken throughout the organization to achieve objectives set by leadership.
At the end of the day, the purpose and value of enterprise risk management is to ensure the organization is achieving its objectives. A vital part of this process is to identify what may hinder or help the organization accomplish its strategic goals.
As you may know, questions I receive from readers oftentimes receive an individual response. After all, ERM has to be tailored to the organization, so usually generic answers will not work.
Below is an overview of my response to this question about identifying risks to initiatives, plus some additional considerations for doing this effectively in your organization.
Although you identify risks directly related to objectives, you also have to look at risks to initiatives since these projects support strategic goals…
A critical part of discussions regarding strategy have to focus on what is being done to achieve the objectives (i.e. initiatives).
Identifying risks to initiatives is linked to objectives simply because they will impact whether the goals are met or not.
Since initiatives typically have one point person or “project manager,” it will ultimately be this person’s responsibility to understand risks to initiatives and take appropriate action…
One way I present this to my clients is to ask them to first make a list of the initiatives they want to work on over the next year.
Next, any risks associated with each individual initiative need to be assessed to determine if the initiative is too risky.
Is there too much risk associated with supporting the objective? The only way to know for sure is to go back and see how the risk(s) stack up against your organization’s risk appetite and tolerance. As I explain in this article, risk appetite is a high level statement on how much risk in what areas the organization is willing to take. Risk tolerance drills down a little deeper to establish minimum and maximum thresholds around the risk appetite that the board is willing to accept.
As I also explain in the article, risk tolerance can be phrased in terms of money, customers, reputation, or a combination of different parameters.
Once these risks have been identified and compared against the risk tolerance, decisions can then be made on how best to proceed. If the risks to the initiative are too great and therefore spill over to achieving the objective, it may be time to consider changing the objective or abandoning it altogether.
It’s also important that risks to initiatives not be examined in a silo…both risk professionals and project managers have to look outward as well.
For example, is there another initiative that has competing resource needs and conflicting goals? Are there any external influences or emerging risks that could negatively affect customer satisfaction?
It’s also important to go beyond risks to the initiative and consider any risks the project(s) introduces to the organization as a whole. Project managers may not necessarily track these types of risks. However, if you as the risk professional begin noticing patterns, bottlenecks, dependencies or have any overarching concerns, you will want to share those with the project manager. An even better situation is ensuring that the project manager knows the right people to talk to when they identify when the project could or is creating organizational risk.
And one more point – the methods you use for identifying risks to initiatives must adapt to fit the circumstances.
I’ve been mentioning the connection between ERM and entrepreneurship lately and will continue to tie this idea in where I think it fits. Like entrepreneurs, ERM professionals and the processes they use must be adaptable to changing circumstances. What works in one instance or place in time may be completely ineffective in another situation.
Before identifying risks to initiatives though, you must establish the context.
As I discuss in my eBook 5 Effective Methods of Risk Identification, establishing the context or “focal point” of your effort is an essential first step. You’re essentially asking the question – what exactly are we evaluating risks to?
The ISO 31000 standard’s definition defines this step as:
By establishing the context, the organization articulates its objectives, defines the external and internal parameters to be taken into account when managing risk, and sets the scope and the risk criteria for the remaining process.
Examples of a focal point could be something at the highest levels of the organization like strategic planning or it can focus on a one-time project, a process, or a business function.
As Peter Cockcroft explains in this article, objectives and criteria for a project or initiative need to be considered from the standpoint of objectives to the organization as a whole during this prep phase. All objectives related to the specific project need to connect to the broader themes, strategies, and plans for the organization.
To learn more about establishing “context” for risk identification, including examples of internal and external parameters, I highly recommend Peter’s article (above).
Does your organization identify risks to initiatives or do you focus solely on risks to strategic objectives? What methods have helped you identify these risks?
I’m interested to hear your thoughts on this topic. Please feel free to comment below or join the conversation on LinkedIn.
I also want to say thank you to the reader’s question and for it serving as the basis for this article.
If your organization is struggling with identifying risks to initiatives or strategic objectives as a whole and need an outside perspective to begin making progress again, complete this form to be notified when spots for coaching and consulting open up on my schedule.
Featured image courtesy of Diego Delso via Wikimedia.com.