Risk Management – Can risk be positive or should it be left to chance?

Companies of every size and shape face a range of risks affecting the achievement of their objectives. With the globalisation of supply chains, in particular in the pharmaceuticals, electronics and food industries, there are a plethora of examples of where inadequate risk procedures have led to unfortunate outcomes. While “risk” is commonly regarded as negative (versus “chance” which has positive connotations), Risk Management should be as much about exploiting potential opportunities as preventing potential problems. BS 31100 is a relatively new framework to help companies to understand, develop, implement and maintain effective Risk Management in order to enhance an organisation’s likelihood of successfully achieving its objectives. My message to the senior managers in businesses considering whether to go down the BS 31100 code of practice route, or approach Risk Management through chance, is to encourage them to embrace this discipline in a personal way and involve it as part of everyday thinking. Put simply, Risk Management is an essential part of good management, not something to be left to chance.

Process risks
If we are considering an evaluation of process risks, a basic logic might tell us that if all the inputs are controlled and the process is fixed then surely the outputs should follow as expected. Here elimination of risk is about process control. However, there’s a danger of looking at elements of a business individually, applying targets to isolated areas and addressing them piecemeal so that the best that might happen is a box ticked in one area, and the worst is a stultifying of services, function (and, naturally, profit) in other areas. A major headline in 2008 exemplifying this was “A&E patients left in ambulances so trusts can meet government targets”. People were kept in ambulances outside hospitals for hours and not allowed in until they could be treated in A&E within four hours in line with a Labour pledge. The hold-ups meant that ambulances were not available to answer fresh 999 calls. Putting boxes around the separate areas of the customers’ experiences overlooks the vital interconnections that are needed to help the organisation thrive. In contrast we can look at Process Capability: how the process will make the situation better with an enhanced customer experience; how negative risk can be minimised and not become mired down in ever deepening levels of disciplines. In summary – avoid targets!!

I’d draw a parallel with the natural world. In Nature it is well understood that systems are a sum of interdependent parts and influences, and that to alter one of them in (so-called) isolation is in fact to create an imbalance which could have catastrophic effects.

People risks
Risk Management also concerns itself with people risks. It might seem rational to set the workforce fiscal targets to achieve. However, providing clear targets, goals, timetables and reward systems in the banking system has brought about the most serious recession in living memory. This is because processes rely on people relationships: people buy from people: profit comes from people: we need people’s co-operation for a business to thrive. Even with such clear pointers, companies big and small alike make the mistake of paying too close attention to financial targets at the expense of relationships all along the supply chain. This is an even more grave error in times of recession when relationships need to be nurtured as customers all through the Value Chain continue to make emotion based decisions.

One such major company is Toyota, about which Professor H Thomas Johnson of Portland State University commented “The reversal of Toyota’s fortunes in the past decade suggests that many of its top managers lost the habit of thought that caused the company to act like a living system”. Instead of nurturing relationships, a policy of driving people to meet financial targets was followed. The result? After 50 years of profits, Toyota has recorded annual losses in the last 2 years.

I have had recent experiences of companies using various Lean or Process techniques to reduce costs, with reduction of employee costs the highest focus. Not surprisingly motivation was nowhere to be seen and targets and goals were everywhere.

For me, at the heart of risk management are Process Capability and People Motivation as two sides of the same coin. Our business chains are a living system not a grouping of individual activities. Process Capability and People Motivation must be first focussed to Customer Benefit, not short term unrelated financial targets.

I hope I have demonstrated that Risk Management should be a key part of a Chief Executive’s life. I’ll happily repeat that risk management is an essential part of good management. At MA Consulting International we can support businesses through auditing, coaching and mentoring in the field of Risk Management and have on board a team of knowledgeable practitioners.

Anthony Abbott

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