How to do Risk Management in Lean Times
The good news for risk managers is that times have been tough, so that company management is listening more and more to your message.
The bad news for risk managers is that times have been tough, so there is not much budget for anyone, let alone an area where there is no hope of new revenue generation.
So risk managers are being asked to do more and more with less and less.
Here are some tips for how to manage to meet expectations without crashing the budget:
- Identify the area or activity that now has the most expensive risk oversight process. Identify the reason for that expense and make sure that a) there really is a need for that much oversight, b) if so, that the profit margins of the activity support the expense of the oversight and c) if there is a way that the riskiest 20% of that activity produces a high proportion of the profits. Can a shift in the risk acceptance criteria or the risk limits make a drastic change in oversight needs without a drastic change in profitability?
- Get more people involved in risk management. This seems counter to the idea of decreasing costs of risk management, but in fact it can work well. Study the things that the risk management staff is spending time on and determine which of those activities can be transfered to the business unit staff who can do the oversight on a very part time basis. Your risk management staff can then shift to periodic review of their activities instead. This should be promoted as a natural evolution of risk management. Ultimately, the business units should be managing their own risk anyway.
- Find out which risk reports are not being used and eliminate them. Constructing management information reports can be a very time consuming part of your staff’s time. Some of those reports are hopefully being relied upon for major decisions, but there may be some that just sit unread in the in boxes.
- Reduce staff support for risk management in areas where activity levels are falling. It is very important that risk management be ramped up with volumes and just as important that it be seen to ramp down with volumes.
- Leverage outside resources. In fat times, you may be declining free support from vendors and other business partners. In lean times, they may be even more happy to provide their support. Just make sure that the help that they give supports your needs.
- Reduce frequency of time consuming model runs for risks that just do not change that much from run to run or that change proportionately with volumes of business. See recent post on model accuracy.
- Expand your own personal capacity by delegating more of the matters that have become more routine. There is a natural tendency for the leader to be involved in everything that is new and important. Sometimes, you forget to transfer those responsibilities to someone on your staff or even someone outside your staff once you are sure that it is up and going smoothly. Let go. Make sure that you have the time that will be needed to take up the next new thing. Lean times will not last forever and you need to be available to pay attention to the thing that will pull your firm forward into the next stage of robust growth.