The importance of compliance and risk management has significantly increased over the past few years because of the numerous scandals and failures from local and foreign companies. There’s a persistent need to build an effective, risk-aware culture at all levels because the risk intelligence of workers is one of the factors that defines and separates success from failure.
Risk Management Capabilities Critical to Organizational Performance
According to a 2011 report conducted by the Harvard Business Review Analytic Services, entitled Risk Management in a Time of Global Uncertainty, the following risk management capabilities are critical to organizational performance:
- Linking risk information to strategic decision making
- Embedding risk management practices and responsibilities within strategy and operations
- Ensuring that all decisions remain within the organization’s risk tolerance
- Driving risk mitigation activities
- Proactively identifying current and emerging risks
Establishing Effective Enterprise Risk Management Processes
The report conducted by the Harvard Business Review further went on to state that in order to establish effective enterprise risk management processes, the following five (5) lessons must be adhered to:
- Risk management needs to have a clear “owner” to be effective
- Corporate goals and risk management must be integrated
- Manage risk proactively
- Look deeper and wider to determine what their most serious risks will be in the long run
- Break down silos and managerial bottlenecks
Key indicators of success for integrating an effective risk culture are board-level support and the incorporation of a Chief Risk Officer (CRO), charged with the responsibility of risk management. It’s imperative that the CRO works closely with the Chief Executive Officer and line managers for the smooth integration of the risk management processes.
Simply stated, risk management is imperative for success. Subsequent to determining the effectiveness of existing risk and compliance programs, organizations should seek to implement the aforementioned risk management capabilities and adhere to the five lessons mentioned above. Therefore, giving rise to a risk resilient organization capable of mitigating risks, increasing the probability of sustained business growth.