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March 4, 2015

10 Building Blocks for Risk Leaders (Part 3)

Summary:

Risk leaders must make themselves essential to others' successes, earning the kinds of points that count among the business' leaders.

Photo Courtesy of Sean MacEntee

Important things in life are not easily reduced to 10 easy steps. Nevertheless, this series provides a list of 10 building blocks to achieving long-term success in risk management from someone who has spent more than 25 years striving to carve out the most satisfying career possible, while never losing sight of the attributes attached to the bigger picture. Part 1 is here, and Part 2 is here. This is Part 3 in the series:

5. Racking Up Points with Senior Managers

The points that risk managers offer up are not always creditable “points” in the eyes of senior managers. To be so, they should be tied to the things that matter most to the organization and that can be traced, at least indirectly, to mission accomplishment. In other words, what matters most is contributing to the success of the enterprise—not just reducing the cost of risk, which is the longstanding focus of many traditional risk managers. That is not to say that reducing the cost of risk is not important or that it doesn’t contribute to organizational success. It does, especially where the total cost of risk (TCOR) is a material factor in total expense. Yet, to be recognized as making a significant contribution to the success of the enterprise, risk management practitioners must find a way to connect more directly to the successful delivery of strategic priorities, by supporting the objectives that underlie them. It’s about putting the right points on the board and, as a result, being seen as more relevant to strategic imperatives.

This is often easier said than done. Among the challenges are questions about whether the risk management employee has the qualifications and expertise to successfully contribute. The risk management employee often faces retorts like these: “Don’t we already account for risk (often called business challenges by planners) when we set the plans?” “This risk input is not translatable for purposes of plan development and is therefore not helpful.” “There is no time to conduct the assessments and measurements of relevant risks that would allow risk inputs to be properly considered.” “Our C-Suite sees no substantive reason to open the process up to more contributors when time is often of the essence and the dialogue is reserved for only the true strategists in the enterprise.”

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The chart above, from The Global CFO Study 2008: Balancing Risk and Performance Within an Integrated Finance Organization, reflects that risk managers, even chief risk officers, are perceived by chief financial officers as more tactical in mindset than strategic.

Never fear: Perceptions can be changed .

This article is not intended to provide all the answers to barriers to entry and success in collaborating with planning. However, it is intended to emphasize the importance of this collaboration and the critical need for all risk leaders who aspire to true relevance and influence to spend the political capital necessary to knock these barriers down or at least minimize them. The bottom line is that the only reason corporate goals and objectives are not met is that one or more risks have not been properly identified and managed. That makes risk management a critical component of organizational success.

6. Establishing Yourself as Essential to Others’ Success

Risk management stakeholders can’t succeed without the right risk strategy and, most particularly, the right risk leader who understands their priorities and knows how to build relationships of mutual benefit. And, risk leaders can’t succeed without successful stakeholders. Unfortunately, relationship-building has not generally been a strong suit of many risk managers, myself included (early in my career). Risk employees who move out of their comfort zone will discover this is the key tactic to use in building these relationships. Staying in traditional roles is ultimately a strategy doomed to keep you in a rut.

Even when dealing with hazard or traditional risks, it is no longer possible to do the job with excellence while staying in that comfort zone. All the many forces of culture and the challenges of the business will eventually shine a bright light on risk management personnel and their contributions, or lack thereof, to the organiza- tion’s success.

While reducing the cost of risk and bringing home expense reductions is important to most competitive enterprises, it is less important for those that are flush with profits and cash. So, it is important not to get myopic about the cost of risk as a key measure of success. Consider what others things define and drive organizational success, and figure out how to connect to them.

It is only through collaborating with risk stakeholders and showing them the value that risk leaders bring to the table that long-term success will be achieved. Spend the time to reach out to stakeholders, learn their exposures and gain sufficient knowledge about how they manage these exposures and their priorities. That way, risk leaders learn when to challenge an assessment that doesn’t look quite right and can do so with the risk intelligence and personal gravitas necessary to earn confidence. By helping owners effectively manage the risks that directly affect their own success, risk personnel will be welcomed to the team as their “street cred” is established and acknowledged.

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About the Author

Christopher E. Mandel is senior vice president of strategic solutions for Sedgwick and director of the Sedgwick Institute. He pioneered the development of integrated risk management at USAA.

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