How can a strong risk management program improve your organization's performance?

Introducing the concept of 'Psychological Safety' within an organisation's risk culture can be a game-changer. Psychological safety empowers employees to voice their concerns, ask questions, and offer new ideas without the fear of reprisal. In a risk context, this freedom to speak up can lead to the early identification of potential risks and the open sharing of perspectives on how to manage them effectively. A workforce that feels psychologically safe is more likely to engage proactively in risk assessment, offering ground-level insights that management might not be privy to. This creates a holistic, bottom-up approach to risk management, enriching the decision-making process and fortifying the organisation's risk posture.

🔹Shared vision: A positive risk culture is based on a shared understanding of the importance of risk management and the organization's risk appetite. This vision should be communicated and reinforced by leadership at all levels. 🔹Employee engagement: Employees are the frontline of risk management. It is important to create a culture where employees feel comfortable raising concerns and participating in risk management activities. 🔹Training and tools: Employees need the training and tools necessary to identify, assess, and manage risks effectively. This includes understanding the organization's risk management policies and procedures, as well as having access to the appropriate resources and support.

Risk culture is necessary to align objectives with risk management and to translate what that means from the top down as well as bottom up. I have written an article on Risk culture and its importance, as well as the closely related subject of Conduct. In a nutshell, frameworks, procedures etc. are useless without having the right risk culture. It's important to first assess where your organisation is in risk culture maturity then take steps to improve. A way to assess this is to determine how embedded risk awareness is in decision making, criteria included in objectives, new product/strategy considerations, individual performance, speak up capabilities etc.

Consider the fact that not every employee will resonate with the term "risk" in the same way you do as a risk management professional. Is your in-house creative copywriter going to understand it in the same way a lawyer specialized in risk will? Speak their language: in order to improve a workplace's performance, "risk" can't just mean "risk" anymore. In day-to-day chats, use language your employees will actually understand. Once there's a baseline understanding of what "threats," "potential problems," or... "risks" means... then have a candid discussion on whether the stakes have been understood, in order to work collaboratively to mitigate risks and create action plans.

Always keep in mind that almost every Risk has two sides: Up- and Down- side risk. Not all risk is bad, the outcome depends on how it is understood, controlled and managed. This message should be constantly underlined towards employees and stakeholders. An effective risk management process should aim at reducing the probability or frequency of downside outcomes, while leaving room for possible upsides.

A strong risk management program is essential for effective decision-making and innovation. By identifying, assessing, and managing risks, organizations can make more informed and balanced decisions, respond to changes and uncertainties, and evaluate alternative courses of action. This enables them to make better choices that align with their risk appetite and objectives. A strong risk management program can foster a culture of innovation by encouraging exploration of new ideas, markets, products, services, or processes. By providing a structured approach to risk management, organizations can create an environment where employees feel comfortable taking risks and trying new things. This is essential for driving innovation and growth.

Risk management embedded into strategy, decision making and commercial objectives will undoubtedly enhance the quality of decisions and outcomes to achieve greater success and sustainability. You are better placed to make informed decisions and have a much better picture of potential paths.

By incorporating alternate data into their risk management practices, organizations can make more informed, data-driven decisions that reduce risks and create opportunities for growth and innovation. This approach fosters a culture of adaptability and continuous improvement in decision-making processes.In the financial industry, banks and lending institutions have traditionally relied on traditional credit scores and financial statements to assess the creditworthiness of loan applicants. However, these traditional methods may not always provide a complete picture, especially for individuals or businesses with limited credit histories or unconventional financial situations.

A strong risk management program should be comprehensive in identifying risks, managing mitigation plans, reporting risks and also in the process of forecasting the scenarios of possible areas of potential risks. As such risk management plays a very dynamic role in decision making and data driven decision making should be encouraged as much as possible. Instead of hearing just the loudest voice in the room, suitable opportunity should be given to examine every possible idea to manage risk instead of throwing some of the ideas into the dust bin. The importance of speak up culture is something no organization can avoid. Getting there is a journey which spans multiple skill sets and multiple areas of expertise.

O gerenciamento de risco promove ferramentas e indicadores que tornam a tomada de decisão das Instituições mais assertivas. Uma vez que a companhia saiba a quais riscos está exposta, quais possuem controle, quais não, e qual a probabilidade de perda caso algum risco se materialize, ela pode tomar suas decisões de forma direcionada com seu apetite a risco. Sabendo os riscos com possibilidade de perda mais severa, a Instituição vai poder se planejar e melhorar seus processos. A gestão de riscos pode inclusive ser apoiadora na tomada de decisão em questões orçamentárias, pois considere recursos anuais limitados, no momento da decisão onde você investiria em melhoria por exemplo, processos com alto risco ou de baixo risco de perda?

Risk management, viewed as a dynamic tool, is pivotal in deciphering the complexities of organizations. By employing a multidisciplinary approach, it amalgamates insights from diverse fields like economics, cognitive science, and engineering for a comprehensive risk analysis. This broadens the understanding of risks, revealing their interconnections and impacts. Incorporating risk management into strategic planning empowers organizations to make decisions that are both informed and in harmony with objectives, while being responsive to market and environmental shifts. This approach bolsters operational adaptability, equipping organizations to promptly tackle unforeseen challenges and sustain efficiency amidst an changing business landscape.

By having an effective risk management program in place, you can determine focus areas which are critical to the achievement of business objectives. Therefore, this enables the organisation to assign appropriate monitoring, tools and resources based on risk and complexity. It's important to recognise that this should be regularly reviewed as priorities, objectives and macro/micro risks change.

Stakeholder relationship is paramount to the success of a risk management program. Risk management cannot be a siloed activity that runs in the background. It requires the insight and feedback of all staff. Moreover, risk management is the responsibility of the entire organisation and not just one function. Without trust and professionalism, it is inevitable that the risk management program will fail.

A Strong risk management programme should also be a method of measuring the Capability Maturity of the organisation. It's like a live document which will continuously monitor and help organisations improve aligning with their Goal, Mission, Vision and BCP, by considering the probable tactics, techniques & procedure matrix vis-à-vis the countermeasures, new risk mitigation tools, processes implemented taking into account organisation's employees, process and technology.

An area not mentioned above is Conduct. An outcome of all the above and risk culture. Conduct is transversal and cuts across all risks, activities' etc. A strong risk management program can help an organisation improve its performance through good Conduct. I have published an article on Conduct for anyone wanting further detail. But it is not a coincidence that the 2022 KPMG Banking CEO Survey revealed that internal unethical culture was the second highest risk CEOs surveyed were worried about.