Bridging the Gap Between Commitment and Execution in Risk Management

In far too many instances of risk management, good intentions have been viewed as the destination in the journey of managing and mitigating risks. Good intentions have seldom translated into commitment, fulfilled by execution to reap the benefits of risk management. Analysis of organization’s risk management commitment, or rather the lack of it, signals a two-pronged approach: First, commitment to risk management is not considered a core enterprise function; second, in cases where organizations devise a risk management framework, they do it without board level commitment and direct involvement.

In the first of the two scenarios, risk management is treated as a mere option that requires attention to answer regulatory compliance queries. It’s not viewed as a requisite that adds digits to financial gains. While this approach makes the organizational risk management strategy fundamentally flawed, lack of board level commitment renders the practices initiated by heads of the risk management department, ineffective. More often these approaches combine to expose the organization to emerging risk scenarios of non-compliance due to evolving regulations, infrastructure damage and reputation harm – all leading to massive financial loss.

Unsurprisingly, these companies fail to bridge the gap between developing a well prepared plan and ensuring it actually works. Sadly, the situation is prevalent across firms, from the established enterprise through mid-market company to young start ups.

To remedy the first approach, companies should embrace that adoption of meticulous risk management that assures:

• The achievement of business objectives and stakeholder expectations through efficient use of resources;
• Adverse occurrence prevention;
• Optimization of opportunities and reduction of potential loss; and
• Protection against compliance and regulatory issues.

For remediation of the second approach, risk managers should take up the uphill task of determining the true nature risk commitment of the organization. Done diligently, the task will offer valuable insights for future performance.

• For the reality check, risk managers should seek answers to questions which will include:
• If the risk management head is adequately represented at the board level?
• If risk management performance determines the compensation of the risk head?
• What’s the frequency at which the senior management interacts with the risk division?
• Does the board implement the suggestions provided by the division?
• What role does the risk head offered during formulation of risk strategy?
• Does the board refer to the company-wide risk strategy in the management of everyday operations?
• If the risk management department is capable to counter emerging threats?
• Queries to gauge the reporting structure and the importance accorded to the risk department in crises management.

Less-than-satisfactory answers would require risk managers to design a plan to get the board level commitment.

Following the acceptance that risk management is a core enterprise function to be fulfilled via active involvement of senior management with the help of efficient software tools, emphasis should be given on execution of the defined risk management strategy. Execution is vital because poor execution dwarfs a sound and committed strategy. On the other hand, a disciplined implementation of risk management practices offers sustainable competitive advantage.

Execution of risk management practices involves getting the right things done through right resources at the right time. The success of implementation depends on how risks are prioritized based on the enormity of potential impact and likelihood of occurrence. A practical and unambiguous accomplishment strategy will ensure stakeholder participation, and shared purpose and values will ascertain risk-informed decision making.

Closing the gap between commitment and execution in risk management is tough due to multiple reasons. They include: the lack of one-solution-fits-all method, the vast scope of risk assessment processes and the dynamic complexities involved in execution of strategies which are industry- as well as sector-specific. But the benefits of bridging the gap between two are too critical for any business to ignore.

As the challenges continue to evolve – due the increasing complexity of the regulatory landscape which demands stricter implementation of prescribed norms and the emerging uncertainties around business performance – conscious efforts to establish a synergy between the two will yield sizable benefits. Commitment to a sound risk management strategy coupled with expert execution will magnify the probability of future success while at the same time ensuring that the current challenges are addressed. A successful business model in which risk management commitments are combined with efficient execution, will enable active managing of risks efficiently, while proving difficult to replicate by competition.