Craig Spielmann, CEO at RiskTao, LLC, shares his insight on Enterprise Risk Management frameworks.
A few years ago the Federal Reserve and OCC presented operational risk’s role in the financial crisis at a major NYC risk conference. They stated that it was the “most critical risk “ to the financial industry.
I followed them with my “Operational Risk Needing a Facelift” presentation. I started by asking the 400 plus operational risk professionals, if they expected their budgets to increase given it was cited as the “most critical risk.“ Not a single hand was raised. I asked, “How many of them expected to have their budgets cut?” Half the room raised their hands.
This seemed illogical on the surface. Companies seemed to be under investing in their “most critical risk.” This points to problem that continues to be a struggle around measuring the “perceived value” of the ORM function. How do you do it? If a company losses less money in a year from ORM events, can the ORM team use that metric to measure their performance or is it just timing and circumstances. So how does management know if their investment is paying returns?
Another perspective comes from my own personal experiences conducting ERM/ORM and risk workshops at conferences and individual institutions. Towards the end of each workshop, I ask participants “Would you pay for your own services?” The vast majority of them answer “No.”
These data points tell us that ORM functions need to transform to add value. The have to demonstrate that they are influencing the business and driving overall results. This can take the form of proactive risk identification and mitigation that assist the business to achieve their goals in a safe and sound way.
Here are recommendations to improve the value proposition:
- Strive for Excellence – Organizations must recognize and invest in risk transformation to gain a competitive edge and achieve higher returns.
- Run ORM as a Business – ORM groups should run as “business, “ understand their value by assessing, their people, products and services, processes and technology to effectively compete for budget.
- Strategic Alignment – Risk has to be involved in strategic planning to make a significant contribution and be in-step with the organization. This will assist them to understand and work with the business and achieve success.
- Talent – Organizations need to attract and keep talent. This includes having a “skills model” aligned against goals blended with a smart compensation structure.
In conclusion, ORM and business management are one in the same. The alignment between the two is paramount to running a successful business. There is a better path to achieving this seamless integration goal. There is tangible value that from transitioning risk into a “business mindset.” As we learned in the financial crisis, getting it right can generate a competitive edge and a higher ROI.
Craig will once again return to New York to address all of these items and more in the “Supercharging Your ERM/Risk Program Master Class” on October 18, 2017.
Find out more about and register for Craig’s Masterclass here.