68 thousand tifosi in Napoli’s San Paulo Stadium had witnessed the triumph of fantastic defence. After 90 minutes of gruelling football, 30 punishing minutes of extra time, the game remained deadlocked at 0-0. The referee blew his final whistle for the much dreaded penalty kicks, except that he didn’t. The year was 1968, and penalties were not formally introduced until 1970. The game had to be decided by a coin toss.
The Craziest Game ever: Italy vs. USSR, 1968 Euro Semi-final game Coin tossing is the ancient art of throwing a coin in the air to decide between two alternatives, which inherently have only two possible outcomes, a win or a loss. In the business environment, coin tossing is the dilemma of choosing this way or that way; this decision or that one and/or taking one position or the other. Organizations by their very nature are in the business of crazy games and coin tossing as the business is continuously faced with hope of winning and the likely possibility of losing with every management decision.
The role of Enterprise Risk Management in the organization
The Risk Management Society (RIMS), a body of professional risk managers defines Enterprise Risk Management as “a strategic business discipline that supports the achievement of an organization’s objectives by addressing the full spectrum of its risks and managing the combined impact of those risks as an interrelated risk portfolio”.
The role of the Enterprise Risk Management function is not only to ensure that the organization is prepared for all forms of shocks and adverse uncertainties which could affect its bottom line revenue; but most importantly, it is charged with ensuring strategic navigation and calculated decision to take on challenges and opportunities which guarantees overall success in all situations.
Wining in every situation can only be achieved by doing the unusual and rather puzzling act of looking forward and looking backwards at the same time, safeguarding the back-end whilst automatically and assertively guiding the front-end. Engaging historical and futuristic trend analysis in line with defined best practice measures to ensure that whatever side of the coin is presented, the business is prepared and has the tactical ability to win. It involves undertaking cognitive and experiential situational analysis of core and organizational support processes to continuously leverage on strengths whilst also, simultaneously improving on nascent weaknesses.
Cognitive knowledge in this term refers to having a full understanding of the business, the environment and the likely outcome of situations through accurate data analysis while experiential refers to information that is gathered from past trials and errors of the company, and that of other major players in its industry. The new information generated from both activities becomes new knowledge, which is continuously increasing in capacity and this knowledge is re-distributed to every aspect of the business operations through trainings and awareness to drive efficiency.
Two aspects of the Enterprise Risk Management function(compliance and strategic) ring clear, the compliance aspect involves putting a safety net in place in line with constituted/regulatory authority within the specific industry to safeguard against all negative risk situations. This back-end type of risk management is only responsive to checkmating negative situations.
The Strategic or front-end risk management on the other hand refers to exploiting the full opportunities of risk situations and this would include tactical forecasting, predictive and intelligent thinking and dynamic business process re-engineering efforts that guarantee increased bottom-line revenue. This type of risk management strategy challenges perceived organizational status quo, overtakes competition and differentiates the organization from others in its market.
When risk management is excluded from key decision making in all aspects of the business and its observations are dismissed or considered as merely consultative with no meaningful contribution to frontline operations, suffice it to say that the line managers clearly do not have the best interest of the organization at heart and such an organization is placed in a precarious position of being reliant on persons who are only concerned about the interests of their departments and not the long-term interests and viability of the organization as a whole. Characteristically, effective organizations constantly challenge themselves on worst-case scenarios; they are their own devil’s advocate, and the cynical but discerning thought process forces a shift of energy towards performance optimization.
Risk Management as everyone’s job
To effectively drive the enterprise risk management agenda, line managers must value the role of the function and voluntarily offer quantitative data and qualitative information in form of suggestions, experiences and concerns from all strata of the core and support operations of the organization. This would form the mainstay for the cognitive and experiential knowledge development. The information must be accurate and speedily available so that decisions and directions can be rapid and the organization can reflect the image of a stealthy corporation that is aware of its environment and captures the feelings of its clients whilst also outperforming its nearest competition. The relationship between the ERM function and line management should therefore be a seamless flow of value-adding information in terms of both tangible contributions to performance-oriented decision making.
Strategic positioning for organizational efficiency
The vision for improved organizational efficiency can be achieved by working assiduously with operational business units in line with the outlined plan:-
•Application of risk procedures in core and support services including recruitment, procurement and contracting.
•Evolving the risk mitigation strategy in line with the changing organizational risk appetite and best practice procedure for risk acceptance, avoidance and transference.
•Developing and effectively exploiting the Enterprise Risk Management function as a tool for operational Business Process Re-engineering.
•Developing the Enterprise Risk Management function as a tool for cost management within the organization.
•Enterprise Risk Management as tool for effective project management and operational monitoring.
•Developing Enterprise Risk Management as tool for business development and optimization of opportunities in the business environment.
The fact remains that even the best of organizations won’t always get things right all the time, but with a strongly positioned ERM function, it can be certain that even when we decisions go wrong, the business will only get a chance to learn valuable lessons without suffering any catastrophic effects.
That I suppose is called a win-win situation; winning, even in the event of a loss.
Adewale Akinwale
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