Turning Risk into Reward: Navigating a New Course toward a Return on Risk
Morris, Gregory, Risk Management
Is it time to think differently about risk? What if the risk perspective was inverted and looked at not as something to avoid, but as something that to manage for competitive gain? What if, in today's litigious environment and lingering hard market, well-managed risk became something that could be leveraged for financial reward?
Measuring risk for a return to the organization is a revolutionary new approach. Yes, it is possible; the map, the compass and the navigational tools do exist to chart a course on these new seas.
Why a new approach? Risk managers, C-suite leaders and consultants agree: the business of risk management has changed radically in recent years. The days when the job simply meant buying a risk transfer policy for a competitive price are over. Every major aspect of an organization--its finances, its operations, its products and its human capital--either impacts or is impacted by risk, and risk management is becoming a key strategic line item on the balance sheets of organizations large and small.
How well an organization handles today's ever-increasing complexities of risk--especially compared to other organizations in its space--is about much more than the simple mitigation of loss. When risk is managed and reduced, the results are not only internal financial and operational advantages, but a measurable competitive advantage that affects every area of the company, from the costs of risk in the marketplace, to employee morale and retention, to the company's position in the marketplace.
Today's complex challenges require a new approach. With the right system, process and tools, risk can be fundamentally turned around from its traditional role as a "necessary evil" of business to a positive center of opportunity and gain for organizations of every size. What is needed is a next-generation solution that combines:
* a global approach to risk pioneered by enterprise risk management
* the technology and resources to formulate "predictive data," and then turn that data into advanced tools for benchmarking and measurement of returns
* the unbundling of services so that these solutions would be feasible for all organizations
* using analysis and benchmarking to demonstrate how superior risk management specifically improves the bottom line
A New Course
The strategic approach of managing for a return on risk combines these elements into a system that enables companies to leverage risk for competitive advantage and manage a portfolio of risks in an interconnected environment. By tying risk management to process improvement, a return-on-risk approach links operations, finance and marketing to produce the holistic, systemwide risk management approach that is the promise of ERM.
In order to realize this promise, however, a return-on-risk approach must be built around several key elements:
* the data for analyzing and prioritizing risk drivers
* advanced tools for benchmarking
* remedial guidance for operations and finance
* tools for measuring progress and comparing the firm to others in its local, national and international markets
These measurements allow the company to measure its degree of risk to competitors and to leverage superior ratings into financial and operational gains. Furthermore, with these factors working in concert, the return-on-risk approach shifts the whole framework of risk management from negative to positive, leveraging risk for opportunity and competitive advantage in an increasingly complex environment.
Unlike earlier programs in ERM, this process is entirely modular. It recognizes that every positive step that lowers costs and reduces claims contributes directly to the bottom line and indirectly to other parts of the organization. The more steps that are taken, the broader the results will be, ultimately yielding exponential improvement. …