A Risk Based Approach to Business – Taking a Practical Approach to Business Success

Most people enjoy reading a good story. A good story is made up of 5 basic components that include CHARACTER(S), SETTING, CONFLICT, PLOT AND RESOLUTION. In a good story, there is typically a unique combination of the character(s), setting and conflict that makes for an interesting plot that feeds to the resolution.

 

All organizations tell a story that speaks to where the organization is, how it got there and where it is likely going. A good business story is one that speaks to success in the midst of the complex settings and conflicts.

 

In today’s business environments, the “Main Character” of the business story is “Risk”.  Risk is a very powerful and influential part of an organization. The path that organizations go down (storyline) is driven by the risks an organization TAKES that positively impacts them and the risks they AVOID or MITIGATE that can negatively impact them. Collectively, these decisions on “Risk” tell the story.

 

Good business stories are typically not a product of chance. They are strategic and purposeful about implementing a “RISK-BASED APPROACH TO BUSINESS” and apply logic and consistency to deal with the main character – Risk.

 

 

The Setting

 

Where does the character “Risk” live and what does it look like in an organization? The best way to think of the setting is to picture an “Organizational Risk Puzzle” that has many pieces.

 

When you hear the term “Risk” in organizations, most associate it with Traditional Risk Management. If you own or work in a business, the risk that typically comes to mind is liabilities associated with owning buildings, vehicles, and equipment or the risk associated with workers’ compensation programs. These risks, commonly known as “Pure Risks” typically get a portion of an organization’s attention (time & resources) with the goal of eliminating the risks and/or mitigating what happens.

 

The larger part of the organizational risk puzzle falls into the bucket of “Speculative Risk”. In this area, as opposed to eliminating risk, the goal is to find the right amount of risk that fits an organization’s appetite and enables them to be successful.

 

In short, the character known as risk is everywhere and resides in every business process area, organizational goal, strategic & geographic initiative, and compliance area and pretty much every part of an organization. In addition to what is in plain sight, organizations have emerging risks that expand the setting to new areas.

 

 

The Conflict

 

There are natural challenges that come when you put people inside the 4 walls of an organization. In a business story, the “Organizational Risk Puzzle” becomes even more complex because it appears to have “Mountains” and “Rivers” randomly running between and through the pieces of the risk puzzle.

 

What appear to be mountains are actually “Silos” and what appears to be rivers are “Politics”. Silos are groups of people put together for a dedicated purpose that move towards working independently. Politics are the people in organizations positioning for personal agendas that may not align with what is best for the organization. These are real obstacles and distractions that can divert from an organization’s vision and mission.

 

Organizations are generally good at developing silos but are not good at permeating them. The conflicts naturally expand because the siloed environments advance differing and non-aligned priorities, lack coordinated decision making, promote loan rangers, isolated groups, redundancies as well as unhealthy completion to mention just a few of the negative by-products. Of course, organizations typically do not have a good way to deal with the negative ramifications of politics other than in backroom conversations and through organizational noise.

 

 

The Plot

 

After organizations acknowledge that risk is the overarching theme and key to business success, the “Plot” is pretty straight-forward. IT IS TAKING A RISK-BASED APPROACH TO BUSINESS.

 

Within the story’s plot, the character known as “Risk” puts structure and accountability to the process. In a risk-based approach to business, risk takes on a new and more productive role. Risk works for you.

 

A very important part of evolving organizations is the ability to come together and develop “Plans” to deal with existing and emerging issues.  A Risked Based Approach to Business states that if you can develop a plan, you can identify the risk that can prevent the plan from playing out; and if you can identify the risk to a plan, you can put controls in place to make sure the risk does not play out.

 

The plot states that you cannot leave room for failure. You must be proactive and use identified risk to beat what could go wrong to the punch. The plot builds consistency to success by proactively mitigating what could go wrong. By doing this you are teeing up what can go right.

 

 

The Resolution

 

Figuring out how to pull all the pieces of the puzzle together in the midst of challenges are business defining moments. Successful organizations realize there needs to be consistency in cutting through the challenges and making the obstacles less relevant.

 

  • Part 1of the resolution is to figure out how to operate strategically. Operating strategically can be your biggest ROI. Organization executives have limited time & resources and a business to run and there must be a platform to operate strategically. Three essentials to operating strategically include your 3 Lines of Defense, a Risk Register, and a Baseline. The 3 Lines of Defense are about being strategic with your people; getting people on the same page going the same direction with motivation. The risk Register is about being strategic with your data and putting attention and structure to what is most important. The Baseline is about being strategic with your controls and making sure what you do connects to where you go.

 

  • Part 2of the resolution is a platform that puts logic to limited time & resources. This translates into a “Structured Plan” process. This speaks to having a practical, simple and repeatable “Blueprint” for all organizational process areas to use when dealing with their risk.

 

By putting structure to plan descriptions, structure to identifying risk that will prevent plans from playing out, structure to mitigation and rating processes and to monitoring as well as change management, your organization will get better.

 

Does your organization have a “Good Story”? Is there structure and logic to how the organization deals with its most plentiful character – Risk? Is there structure to identifying, assessing and either mitigating or taking advantage of the organization’s risks to capture a competitive advantage?

 

 

 

Author Mark Bennett, Founder of Risk Innovation Group (RIG), is dedicated to helping large employers face the complexities of risk through innovative Enterprise Risk Management (ERM) practices. ERM programs don’t just help large employers manage business risks more effectively; a well-developed ERM program can protect and create value as well as improve business performance and generate a strong competitive advantage.  Contact: m.bennett@riskinnovationgroup.com

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