Relationships: A Common but Fatal Mistake of Risk Management

The majority of articles on my blog focus on the process side of enterprise risk management. I’ve discussed at great length subjects like setting up an ERM program, risk identification, risk assessment, and more.

However, the process and technical skills is only part of what goes into a successful, value-enhancing ERM program.

If you’re like this guy from the 1990s comedy Office Space, the road to ERM success is going to be a very long one.

via GIPHY

Tucked away in articles like this one on the qualities of an effective ERM professional or this one on the key players for a successful risk identification, I discuss the people aspects of risk management that often get glossed over by many, including myself at times.

Consider the analogy of an iceberg – you can see the top part of the iceberg, but there is much more underneath that can’t be seen but supports what can be seen. Executives, managers, and staff can see the ERM process, but not all of the back-and-forth that goes into getting and keeping the buy-in, the face-to-face communications across the organization, and more.

In fact, the majority of a risk professional’s time will be spent talking to people in a variety of contexts, some of which include:

  • Understanding what risk management processes already exist.
  • Understanding the organization’s culture, both broadly speaking and in relation to risks.
  • Getting crucial buy-in from executives to develop, test, and implement new processes in the organization.
  • Training executives, managers, and even employees on how to think about risk and how to use any tools for gathering and analyzing risk information.
  • Working with employees across the organization to integrate ERM into their existing processes.

Despite the fact that it doesn’t get the attention I think it deserves, I’m confident when I say that properly accounting for the people side of enterprise risk management is the ultimate deciding factor between success and failure.

Let’s consider an example where people skills are essential…

When building the ERM process for your organization, you will encounter a diverse range of personalities. Some will be pretty easy going as the process develops while others will want to influence the process to suit their preferences and circumstances.

There will be those who nit-pick the process or the nay-sayers who claim it will not work, at least for their area.

However, the job of the risk professional is to think about the entire organization, not one specific area. While you will do your best to address everyone’s concerns, it is still impossible to give everyone everything they want and still develop an ERM process that delivers value to the organization.

Developing better people skills to ensure ERM success…

Like I explained earlier, the people side of risk management is often glossed over in favor of technical aspects like risk assessment, reporting, and others. Therefore, any resources specific to the softer skills of ERM are pretty slim to non-existent.

Despite the fact that the concept only came onto the scene in the last 20-25 years, “emotional intelligence” has quickly grown to have a big influence on how people think about emotions and human behavior.

The theory around emotional intelligence was developed by psychologists John D. Mayer and Peter Salovey, who suggest that besides intellectual abilities, people also possess a range of emotional skills that impact their thinking and actions. In their original academic paper on the topic, Mayer and Salovey provide a pretty straightforward definition of emotional intelligence that I think applies to ERM.

“Emotional intelligence is the ability to monitor one’s own and others’ feelings and emotions, to discriminate among them and to use this information to guide one’s thinking and actions.”

Author Justin Bariso in his book EQ Applied provides a practical, real-world guide to help individuals develop better emotional intelligence. In his book, Bariso explains that emotional intelligence consists of four general abilities – self-awareness, self-management, social awareness, and relationship management. A person will naturally excel at one or more of these abilities but be weak in others. His book provides useful tips for improving your skills in each of these areas.

Have you had a difficult conversation with an executive? Or tried to figure out why someone else is being so negative about ERM? These are situations when emotional intelligence will come in handy, so that you can respond appropriately to get a positive outcome.

Although I haven’t read it in its entirety, I highly suggest getting a copy of Bariso’s book, or at least visiting his website for more practical tips on improving your emotional intelligence.  And we can all stand to improve our EQ…

I discuss different elements of the people side of risk management in other posts on my blog. Check out the following to learn more:

What has been your biggest people hang-up related to ERM and how did it impact the success of your efforts?

I am interested to hear your thoughts on this important, yet often glossed over topic. Feel free to leave a comment below or join the conversation on LinkedIn.

And if you’re struggling to get executive buy-in for ERM or train executives, managers, and even employees on the right way to think about risk, please don’t hesitate to contact me today to discuss your situation.

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2 Comments. Leave new

  • Valentim, José Luiz
    October 29, 2018 8:43 pm

    Hi Carol!

    Many people care more about form than about essence!
    It is also true that people with executive positions have little time and prefer greater objectivity.
    However, it is appropriate to know the personality of the interlocutor and establish a strategy based on emotional intelligence to achieve success.

    Very good this your article.

    Thanks for sharing.

    Reply
  • Greg Suddards
    October 31, 2018 4:13 am

    I had the good fortune and misfortune to have been involved in the early days of both credit- and non-lending- risk management as a profession. At the time in non-lending risk management particularly, the risk manager was viewed as responsible for risk – related losses which. of course, is totally unreasonable. Line managers were (and, naturally, still are) accountable for the actions of their resources and have authority to ensure that the actions are congruent with the requirements of the functional area and this was the basis of the remuneration of the line managers. Consequently, intrusion by a risk manager into this domain was always going to be confrontational which rendered the role of the risk manager almost impossible to conduct successfully. With time it became more obvious that having both authority and accountability for the performance of their resources ought bring the responsibility for non-lending losses largely within the ambit of line managers and their remuneration and performances should be determined accordingly. The role of the risk manager then becomes more consultative and collaborative. Perhaps this development is not so much an issue of EI but of Organizational Maturity, though.

    Reply

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