In the workplace, risks are inherent in almost everything we do. Risk can have a negative effect on all aspects of the organisation covering the balance sheet, our reputation and values, and the safety of our staff and clients. Therefore Risk is of paramount importance to all organisations.
Businesses must take many types of risk. And they must evaluate, manage and report them to ensure improved decision making.
We only need to think back to the catastrophic losses incurred by the Banks to be reminded of what happens when we don’t fully understand the risks created by our decisions!
Of course, risk is not just a source of loss, it is also a source of profit and growth. For centuries we have taken risks and tried to shift the odds in our favour. Mathematicians, psychologists and economists have attempted to understand and master risk since the 17th century. These great thinkers have helped boost our knowledge and understanding so that we can approach risk with much greater confidence.
Unfortunately, such an interesting and critical matter has become synonymous with tedium and needless bureaucracy. Organisations often fail to give it the prominent role it deserves despite the fact that the mastery of risk lies at the heart of successful enterprise.
We certainly do need some standard ways of working when collaborating in organisations and teams. Introducing this element of structure should not reduce an organisation’s entrepreneurial approach and must increase value.
Risk doesn’t need to be a complex process but just a matter of some simple and effective tools that help us quantify the risks we are taking. By following a robust process we can remove bias and reduce subjectivity.
So why should risk management be so susceptible to an excess of bureaucracy?
The answer may lie within each of us…
It may be because we do not like uncertainty, we are averse to risk, and we do not assess it all well. As the stakes get higher, the initial thrill gives way to threat. Rigid internal systems can allow us to evade our duty to master this crucial dimension of corporate life, and retreat into a deep and over-documented caution. Risk management in such cases institutionalises risk aversion.
To prevent risk management merely recording our fears and excusing our inaction, Tony Crouch, Outstand Associate, has applied his 30 years of Risk Management experience to develop the Risk Management Tool Kit®.
The Risk Management Toolkit® provides a structured and thorough approach to coexist with a risk-taking leadership and culture. It is a robust process to help organisations ensure that risk is minimised or, at least, understood.
The Risk Toolkit is a small series of simple analytical and graphical models used by teams to take calculated risks, keep risk and reward in balance; make choices from alternatives, and reduce risk levels where this is possible and worthwhile.
Here are some of the key components of the tool kit:
Risk-Reward graph: This is the most important component of the Toolkit. It is used to understand the company’s capacity and appetite for risk; to identify those risks that are worth it and those that are not; and to assess worthwhile opportunities to reduce unnecessary risk.
Scenario Analysis: This tool identifies and ranks the challenges that will beset plans and projects. It involves a brainstorming and scoring exercise that addresses three distinct areas – personal safety, reputation and finance.
Risk Log: The Risk Log ensures that actions are taken and decisions are recorded, and avoids the necessity to repeat the same assessment exercise frequently. It also serves as the basis for accountability to members and regulators.
Decision making analysis: This process uses simple computational models to rank alternative strategies and to take the difficult but crucial “go/no go” decisions.
Code of Business Principles/ Audit Priority Schedule: This addresses the pressures that fall on company values and control when operating in high risk environments.
The Toolkit is applied throughout the company’s business, analysing the past, managing the present and planning the future. It is used at micro and macro levels, the day to day and the strategic. It reduces the stress of uncertainty and ambitious plans and increases the likelihood of success. It is certainly not bureaucratic!
For further information regarding the Risk Management Tool Kit® please get in touch using our contact form.