Harnessing a holistic approach to risk management

They say that there’s no point in flogging a dead horse, but I’d argue that there is definite value in working out how and why equine flesh has turned up in your hamburger.

Last year’s European horsemeat trading scandal was a clear lesson to risk professionals that you can’t simply stop at identifying and then trusting that certain controls are operating. For such a thing to occur, there must be breakdowns or circumventions of controls; after all, most food manufacturers and retailers treat product safety, labelling and food hygiene as top priorities.

Asia Pacific risk leader at Ernst & Young Rob Perry used this example at the Risk and Insurance Management Society’s (RIMS) Risk Forum held in Melbourne late last year. Following his contribution to a panel discussion at what was the very first RIMS event to be staged in Australia, Perry told me that risk managers needed to be willing to dig down to the next level to ensure that the complexity of the risk they’re talking about is understood.

He pointed out that when you start testing controls, you have to focus on how people and organisations might circumvent these processes and mitigants. In short, you must ensure that the controls actually work.

This discussion sprang to mind the other day as I was reading the Roads to Resilience report, which is the work of Cranfield Business School and the Association of Insurance and Risk Managers in Industry and Commerce (Airmic).

In it, Airmic board member and senior vice president and head of global risk management at Intercontinental Hotels Group (IHG) John Ludlow says that the purpose of risk management at his firm is to “champion and protect the trusted reputation of IHG and its brands”. Something, indeed, that would include preventing such a crisis as the horsemeat scandal tainting the firm, while also preparing for the possibility that it could.

In other words, dealing with both expected and unexpected crises, while still remaining focused on fulfilling the organisation’s purpose and protecting its reputation and integrity.

Roads to Resilience concludes that risk management tools and techniques are not enough to achieve these objectives on their own. It goes on to provide a list of action points found in truly resilient organisations, all of which are the responsibility of the risk manager or risk committee.

They include such tricky tasks as bringing uncomfortable truths to the attention of senior management, developing risk architecture in partnership with representatives from the supply chain, contractors and business partners, and developing crisis management teams that are separate from normal management. The attainment of a board mandate to increase resilience and protect the reputation and brands of the organisation is also highly recommended.

Organisational resilience is the overall target – and resilience is, if nothing else, about culture and behaviour. Resilient companies harness the capabilities of everyone in the organisation to create a holistic, embedded approach to risk management and a culture in which everyone is acutely aware of risk.

As Ludlow puts it: “You’ve got to have the right culture; otherwise you’re never going to embed anything. Nobody’s going to do the training, nobody’s going to put it on their personal agenda and talk about it, the networks aren’t going to happen; the network is where your culture lives.”

Resilience should be at the heart of corporate strategy, giving risk managers a potentially leading role – a much broader one than most occupy now. “They may, however, have to acquire wider business skills,” the report states.

Indeed, a strong culture of resilience does require more than traditional risk management techniques. Ludlow again: “As a profession, either we come together and develop business leadership skills, become a mainstream business discipline and add significant value, or we stay as fragmented technical people, called upon only when needed.”

The former option is really the only one for a community of risk professionals with its sights set on a comfortable ride along the road to resilience.