Article Contributed by Ameera Tabassum
Are you among business owners who believe risk management culture is just an over-hyped theory?
If yes, let me help you understand why you may be mistaken. There are solid reasons why you should propagate good risk management culture in an organization.
For instance, analyse the recent financial crisis. Significant losses ensued from ignorance, negligence and greed. Had an effective risk management culture been in place, at least a few big names would have survived the economic catastrophe.
Organizations can no longer shut their eyes to risk management, instead it should be perceived as the first rule of thumb and made part and parcel of projects and business operations.
The question I am often asked is, “Why emphasize risk culture?”
The answer is that by implementing an effective risk management culture, significant financial benefits accrue. Some of the major characteristics of a robust risk management culture include:
- Providing an efficient governance system
- Stating the roles and responsibilities of senior managers clearly
- Encouraging constant improvements
- Delivering a transparent and timely escalation process
- Promoting dedicated leadership and guidance
- Supporting learning from errors
Organizations deficient in these risk management habits can encounter significant problems; look at the bankruptcy and buyout of major financial institutions during the 2008 recession. A risk management culture creates visible improvement in operational risk factors, especially people. A positive attitude towards risks management should become part of the staff’s attitude.
How to achieve a strong risk management culture?
Lead by example!
Leadership is a vital component in implementing an effective risk management culture. It is not like forcing down a bitter pill. Leaders should gradually build appetite for a risk management culture through communication, and by sharing and breaking silos – which have always been organizational barriers, leading to trade-offs between departments and employees, management and the board.
A powerful risk management culture can be achieved when the business leaders understand the significance of risk management and permeate the knowledge across the whole organization efficiently.
Further, a risk management culture can be expanded by:
- Facilitating smooth internal communication
- Involving stakeholders in business decisions
- Communicating and informing employees about the tools and techniques used for risk management in the organization
Every organization is distinctly shaped by its attributes, strengths and weaknesses. The culture of risk management should be made to echo the organizational context or be improvised for better results.
Developing a risk culture is a difficult task; cannot happen overnight. Only persistence and methodical approaches lead to a solid foundation and establish a capable risk culture later on.
I hope you enjoyed reading this introductory post on “Does your organization emphasise on risk culture”. In the follow up, we will look at more critical subjects like “How to Measure Risk Culture?” and “Case Studies on Impact Created by Risk Culture”.
About the Author
Ameera Tabassum is an ACCA Affiliate. She has diversified experience working as Business Process Consultant for an Audit solution company in the Uk. She has over 4 years of experience in Erm risk management solutions and as a practicing manager of Business analysts successfully executing several projects in terms of Risk management strategies, ORM Software solutions and Governance risk compliance.