Risk managers should show their value as lockdowns ease

Risk managers have been struggling to find their rightful place in many organisations but Covid-19 could prove a game-changer, according to South African risk manager Lindiwe Magobholi. “For many years enterprise risk management has struggled within some organisations, still battling to keep its seat at the roundtable, because although it is not a profit centre function it sometimes behaves as one,” said Ms Magobholi, who is business risk manager at Rand Mutual Assurance, an Institute of Risk Management South Africa member and Risk Chat contributor. She explained: “It is seen as a value-add, as opposed to being a contributor to the bottom line. Risk managers have been putting policies in place to ensure that organisations are resilient while achieving their strategic objectives. Simply put, optimising risk for reward. Scenarios are developed to set risk appetites to safeguard the business from any known event. “It is difficult to make these business stress scenarios stick because ‘business as usual’ assumes that the sun will rise in the east and set in the west, and that all will be fine at the end of the day. By nature, people are optimistic – rightly so. But it is our job as risk managers to be pessimistic and think of the ‘out of the ordinary’, ‘black swan’, or ‘outlier’ situations – and manage the business against these risks while harnessing the opportunities therein.” She suggested the objective is to ask: Does the business have an appetite for these risks? Can it treat or tolerate it? Is the business well capitalised to survive a crisis? “There aren’t many events in history such as Covid-19 that businesses can stress-test risk appetites against, and it therefore remains mainly academic in nature,” she said. “As we were enjoying the new year, Covid-19 had started to wreak havoc in other parts of the world and I wonder if we as risk professionals, were already paying attention to the pandemic and what conversations we were having in our emerging risks discussion with oversight committees. “Did we imagine this wave ever reaching our shores? The Covid-19 wave did hit. As professionals, we had to act on our feet while hiding in our homes with our children in fear of our lives.” Ms Magobholi warned: “As the media highlighted recently, it is very clear that many businesses are not resilient enough to survive the pandemic. As businesses were mandated to close in an endeavour to prevent the spread of the virus and only essential services were permitted to continue to provide much-needed services, we witnessed most businesses: struggling to pay rent in shopping malls; struggling to pay employees’ salaries; reducing staff complements; and unable to open their doors and resume trading indefinitely.” According to Statistics South Africa, by the end of 2019 the country was already in a technical recession, Ms Magobholi reported. “The pandemic is unprecedented and no one could have foreseen its impact but consequently, it was very evident that the one month of no trade was catastrophic for most organisations or those that had reserves for less than a month to survive.” She said the crisis raises the following questions: How did we set our risk appetites in the first place? What benchmarks did we use? Are our policies addressing the critical/survival issues for our organisations? Are we having critical discussions at the roundtables? Are we really risk managing the business? “After Covid-19, it is clear our risk management discussions should ease up because a practical stress (even stretched) scenario has manifested and accordingly we should have treatment strategies for our businesses and reserves. This pandemic has reminded us that in life, winter will always come, and we must be prepared for it,” Ms Magobholi concluded.

Risk managers should show their value as lockdowns ease

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