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August 2010
RISK MANAGEMENT:
TOOL OR ADMINISTRATIVE NIGHTMARE?
By Louw van
der Merwe at GRA Services |
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“I have seen many,
if not most, risk management processes fail
within the first year,” declared Louw
van der Merwe, director of GRA Services,
a company that specialises in risk management
services. Here he discusses the reasons
for that.
King Code
The release of the King Code of Corporate
Governance (King 3) last year has brought
the concept of risk management to the fore
again, with most organisations nowadays
attempting to establish a risk management
function.
Many risk management processes fail
for two main reasons:
| 1. |
Firstly, organisations try to do
too much too quickly. It’s like
trying to move from crawling to playing
football in the World Cup in a period
of three months. |
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Louw
van der Merwe
Director of GRA Services |
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| 2. |
Secondly, the initial risk
identification is haphazard. Hundreds of
risks are identified, some in
more detail than others. |
| The
result is a convoluted, administrative-intense
process, which is difficult to manage and
has virtually no long-term benefits for
the organisation. |
Risk Management
It is important to acknowledge that risk management
is neither a new nor a complicated process. Not
only is the successful application of basic risk
management principles the cornerstone of most
accomplished organisations, it is the very reason
for their success.
Smaller Organisations
This holds true for small and big organisations.
In fact, smaller organisations have a much greater
sustainability risk therefore they are much more
in need of the benefits of an entity-wide risk
management process than bigger organisations.
The Challenge
The challenge in most organisations is not in
the implementation but rather in formalising an
existing thought process, and in ensuring that
thought process is embedded and consistently understood
throughout the organisation. It takes time and
is best achieved through simplicity.
Advantages
The advantages are myriad. Imagine an organisation
in which:
| • |
everyone shares the same appreciation
for, and understanding of, risks facing
that particular organisation; |
| • |
every action of every employee, no matter
how junior, is focused on addressing a particular
risk; and |
| • |
the degree of focus and application is
commensurate with the likelihood of that
risk arising, as well as the particular
impact that risk could have on the organisation.
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In such an organisation aspects
like budgeting and applying resources (both
time and money) will be simplified.
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Key Business Risks
Top management, directors and non-executive committees
(such as the audit committee) will identify and
understand key business risks, thereby focusing
their energy on those risks that could affect
the very existence of the organisation.
The Key
The key to managing risks effectively is to take
small steps. Don’t get bogged down in detail
and make sure you have a knowledgeable and very
experienced person on board to assist you, especially
in those crucial first 12 months. To get the process
right may take up to three years.
Sourced From: Exceed |
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