Risk managers urged to loosen up to create value

Risk managers need to think more commercially and should consider relaxing some controls to create more value for their businesses, according to experts taking part in a Riskonnect webinar. The speakers considered whether some risk managers are overly mitigating risk when a holistic approach would lead executives to view risk management as a value-added activity instead of just compliance. “Risk decisions that are made in a narrow sense, with mitigation as the pure and only forefront of those decisions, can sometimes have suboptimal outcomes, and sometimes result in missed opportunities for the company,” said Scott Fenstermaker, head of digital marketing at risk management software firm Riskconnect. Jason Mefford, a risk management consultant and trainer, said most risk managers are “mitigation minded” and feel the need to control. But he said that overly tight controls make it harder for a business to make money. As a result, senior management view risk managers are “restrictors” that stop them from doing business, said Mefford. “When that happens, the whole value that risk management adds is questioned and you start to get issues with executives,” he said. “Risk managers are incentivised to make sure bad things do not happen, but sometimes we do need to take a little bit more risk, because that is the better thing for the organisation overall… It may look as if the risk management programme is not as good, but actually the company can make a lot more money when you loosen some of the controls and think about this in a more holistic way,” said Mefford. Many risk managers “do risk mitigation” rather than risk management, according to Mifford. “A risk management approach is trying to manage and think more holistically. But the reality is most people only think about what is in it for them. If I am a risk manager, I won’t get fired if all the risks are managed and we don’t have any surprises,” he said. “Risk professionals don’t like to rock the boat. They like to play it safe. For most people that is their personality, and that’s why they gravitated to that profession,” he said. Mefford argued that risk managers and senior executives should adopt a culture of accepting mistakes and learning from them. “You want to make mistakes, fix them quickly. You want to learn from mistakes as that is what makes you better,” he said. Mefford also urges risk managers to take more of a commercial approach. “Start making business decisions. Start thinking like the business managers and executives in your organisations,” he said. “Check your ego at the door. Most people in risk management do not have the stomach to be an entrepreneur or to be an executive, and to take on some of these risks is just not in their personality,” said Mifford. He encouraged risk managers to listen to executives and start being seen as someone that is “business savvy”. Some risk managers spend their professional careers worrying about the next catastrophe that could befall them, which eats away at their mental wellbeing and is suboptimal for the business, according to Fenstermaker. “The mentality does not have to be that way. When you talk about the difference between risk management and risk mitigation, risk management is about what risks to take to gather value, and deal with uncertainty that comes along with those. How to maximise ability to meet strategic objectives in light of uncertainty,” he said. Risk managers are in danger of being viewed as Chicken Little, the character from the children’s story that repeatedly warns the sky is falling in, said Mefford. When this happens people stop listening to them, he added. “If we think of all these hazards and things that could happen, we would never get out of bed in the morning. Instead, have a holistic plan; things might happen but you are prepared if they do,” he said. “There are a lot of businesses out there that are so afraid of what might happen that they figuratively never get out of bed. They don’t go into new lines of business or certain parts of the world, or take on certain customers because they are afraid of what might happen, rather than thinking about the flip side – what might go well,” Mefford said.

Risk managers urged to loosen up to create value

Playing it safe can restrict business

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