Risk management: Analysis and implementation

Source: Technology Digital

Date :28/11/2007 17:00:43

The only risks that can really hurt you are the ones you didn't know were there: know them and manage them and they can work for you, says Terry Carroll.

The origins of risk management – In 1986, NatWest and Norwich & Peterborough became the first two retail finance 'companies' to implement holistic risk management.

When we sat down at N&P to write the risk strategy, we could find no reference material except a 'Risk Manual' which was an insurance company handbook. So we started with a blank sheet of paper.

Now, risk management is an industry in itself, together with compliance, audit, internal control and even management consultancy. Like all aspects of governance, however, there is always the risk that it will be done mechanistically, if at all.

So what is risk management?

Risk management appears to be the identification, analysis, evaluation review and implementation of risk decisions:

What is the risk?

What is its possible effect?

Whose responsibility is it?

Should we ignore it, manage it or insure it?

How should we measure, monitor and report on it?

And you can pay quite a lot of money for consultants, risk managers, insurers or in-house risk teams to do all these things. The public sector and especially the NHS is rife with risk management, largely because of clinical risk and burgeoning litigation.

Managing risk

You cannot remove all risk, even if you stay in bed all day. Risk is a fact of life and the source of commercial return. If a company decided to remove all risk it would cost a fortune. You don't make profit without risk. If you insured all risk, the premiums would kill the business.

There are many very good risk management advisors. Our view is that it should be about managing risk, not risk management.

Managing risk is where you have a thorough, objective and ongoing awareness of all the risks and you make the decision anyhow. You have a culture where everyone is empowered to make decisions commensurate with the scale of their role. Three strikes and you're out, but it encourages initiative, especially in relationships with key stakeholders. It can also be highly motivational; staff feel engaged, involved and part of the success of the enterprise. They can be incentivised and rewarded accordingly.

True accountability is a mechanism for managing risk…

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