Effective Risk Management is not an Accidental Transaction
I recently did an Effective Risk Management workshop with the procurement team of a not-for-profit organisation. I really enjoyed seeing the light bulb moment for the team when they realised the power of effective risk management and in how many different ways they could apply what they learned. Get me going on effective risk management and I am certainly not a single light bulb – no way! I am that passionate about the difference effective risk management can make, that I can easily light a small city.
The workshop was great fun. It was great to share some real practical tips and tricks that will help the team going forward and will help facilitate difficult conversations as well. I am grateful for the opportunity to power more light bulbs on effective risk management.
However, the workshop dropped a penny for me.
At times I need to be reminded that not everyone shares my same passion for risk management when we start out working on risk management.
Risk management is perceived as something external to what we do; something extra that has to be done.
We think that it only applies to others or really large organisations. For many people risk management has a negative connotation because it has been forced down their throat for the wrong reasons.
Reality check – we all do risk management, just in different ways and in different degrees of effectiveness. The basics are the same for all of us.
So, what is risk management?
Risk management is a systematic process that allows you to identify and manage risks and opportunities. The process you follow is in essence the same, whether you are looking at a relative minor risk or whether you are looking at a business critical risk. The same elements apply notwithstanding the size of the risk. (see the pretty image included).
Risk management applies to everyone – in life and in business.
We pick a car that we think is safe, pick a route we think will get us to our destination safely, we watch out for the behaviours of others around us and react to it as we think will avoid an accident, we don’t speed and attempt not to cause an accident and so it continues. Doing this is risk management.
In business, we decide where to buy, which supplier to buy from, work out what is the best price that will give us the best product at the right price, will serve the purpose. We decide who to hire and who to make redundant. We decide where to invest or where not to invest. Sometimes it works out and other times it does not. Sometimes we have a sort of a process and sometimes we go with our gut.
I call this accidental risk management.
Is accidental risk management effective? It is just as effective as gambling. You just never know when you lucky streak will run out.
If we follow the risk management process for the sake of showing that we are diligent and compliant, we will still get an answer and it may be the right answer, most of the time. Some organisations work through the transaction of managing risk for the sake of being compliant or being seen as a good corporate citizen. Many companies claim to manage risk and have really great risk management systems. Yet, it does not stop cheating systems being fitted or even lives being lost.
I call this transactional risk management.
Is transactional risk management effective?
It certainly is better than accidental risk management. However, please don’t confuse efficiency with effectiveness.
Remember Albert Einstein said that doing same old stuff in the same way over and over again, won’t get you a different outcome. Thus transactional risk management may be efficient but I don’t think it is effective and it certainly does not produce a different outcome. If it did, it would have stopped the cheating devices or the lives being lost – before it happened.
Another reality check – we learn about the disasters in risk management from large companies because they get the bad press, but it happens to all of us. I won’t quote Forrest Gump, but we know sh**t happens, especially when we are not effective with our risk management.
What makes effective risk management so “effective”?
Effective risk management takes into consideration all of the elements required to identify risk and make sure it is properly controlled and managed. Elementary it is the same as transactional risk management.
The difference comes in with why we do it and what we want to achieve.
The difference comes in on the time spent upfront on asking the right questions in order to work out what the real risks are.
It does not stop at the first answer we get or because the session is over or we passed the audit. It does not stop because the boss made a decision.
Effective risk management happens when we train and coach our people to ask the right questions and to keep on asking questions – the why and why not’s. It happens when we empower our people to ask the right questions and keep on asking until we really know what the real risks are.
The difference between accidental or transactional risk management and effective risk management lies in the art of asking the effective questions.
Effective Risk Management is all about:
- participation, ownership and accountability;
- a focus on achieving the right outcome and
- not stopping at the first question or answer.
It is about preventing the sh**t from happening or looking for opportunities that we may overlook otherwise.
Our Effective Risk Management Workshops
When you attend our Effective Risk Management workshops, you will certainly not fall asleep.
When you do, I make you work because I will ask questions and make you think. And I enjoy seeing your light bulb moments.
Please contact us with your questions about:
- whether risk management should really be part of your business;
- how to train and coach you or your people in asking effective questions;
- whether you should worry about sh**t happening; or
- how you move from accidental transactions risk management to effective risk management.
Look forward to hearing more about your light bulb moments!
Have a great day!
Celia Jordaan is procurement and risk consultant at Ichiban Commercial Solutions, Perth Western Australia. With over 20 years experience, Celia has worked in different countries, locations and cultures in the areas of procurement, supply chain, contract management, law and risk. She has also worked in the area of risk management, contractor management and safety.
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