Live Ammunition

Are you working with live ammunition with your risk management program?

What I mean is, when the risk models and the risk reports show a problem, is the reaction to promptly fix the problem, or is the reaction to start a study of the problem?

The question really is whether the risk management information streams are considered primary information for managing the firm or are they secondary systems?

If the reaction to an indication of a problem from the risk management systems is to initiate a study, then the implied presumption is that the real information systems say that everything is ok, and this secondary system says not. So we need to check this out.

Many commentators about risk management have been calling for “RISK” to be given authority. What I think that means is that RISK would be empowered to act when the risk management system tells of a problem. RISK would order that something be bought or sold or whatever to fix the problem.

I think that the presumption there is that there is no possibility that anyone other than RISK would actually ever act upon a warning from the risk management systems. So if risk management is to be taken seriously, then it must be for RISK to do that.

Well, wouldn’t it be much better if the risk management information was considered to be a primary information source for the folks who actually run the businesses? Think about it. If you run a bus company and want the drivers to stay within the speed limit, do you put someone in the back of the bus with a speedometer and a break pedal who will step on the brake whenever the bus starts to go too fast? Or do you train the bus driver to use the brake pedal herself?

Risk Management needs to be everyone’s job. If the CEO of the firm is not willing to hold business managers responsible for risk, then he really does not want risk management.

The job of RISK is not to over ride the bus drivers, it is to make sure that the speedometers and brakes work right, that the acceleration pedal does not stick down and that the driver is well trained in how to interpret the speedometer and use the brakes in the right way. RISK keeps the CEO and the Board informed about the effectiveness of the risk management system and helps top management to understand the risk reward choices that they are faced with when the major decisions about the firm’s future are being made.

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Explore posts in the same categories: Action, Enterprise Risk Management, ERM, Governence, Risk, Risk Culture, Risk Management

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One Comment on “Live Ammunition”


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