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An understanding of the benefits of managing risk - June 2001

By Michael Vincent

28 December, 2006

For the last two months we have looked at ensuring a framework for survival that can be overlaid onto a business to give the best chance of being in existence at the start of the recovery.  The jury is still out on how deep the fall will be; indeed some are arguing that we have almost bottomed.

If this is so then we need to be looking to a successful future with positive elements factored in to the process of risk management.  Indeed we should consult our grammar checker and maybe change our thinking to the management of risk rather than risk management.  A subtle but profound shift in attitude occurs when the words are swapped.

All of a sudden we stop thinking of the functions of risk management and think of the process of the management of risk.  We need tools in the workplace to ensure process and function are meshed together for the maximum benefit of the firm.  One such tool is the 7 "s" model for the management of risk strategically.

The seven factors are:

This month we will look at the first four factors:

Strategy:

Strategic consideration of the management of risk enables executive management to move away from the functions of risk and concentrate on the process.  It allows risk to be seen as a strategic weapon of management and allows for systematic identification of risk.  This process will ensure a coherent framework of decision-making will evolve within the organisation framework of the firm.  The process will create advantage from competitors and for customers; it will make the allocation of scarce resources a critical decision within the business.

Structure:

Structure is critical, it must allow for the free flowing exchange of information to allow for an operational approach to the management of risk within a framework that centralises the identification and decentralises the management of risk.  In other words structure will allow us to clarify the company risk management approach.

Systems:

A system allows for systematic approach to procedures, processes and activity flows and ensures implementation and operation is on a timely basis.  A system allows for the application of corporate memory and culture; additionally ensures operational risk management is managed on at least a daily basis and the management of risk occurs on a global framework.

Style:

Style is about leadership; it is the essence of culture.  A great deal can be observed from the study of companies' leadership.  Correct analysis will be a very good predicator of behaviour and the probable response to situation of risk.

The management of risk is partly about having the correct tools and applications available to ensure the business is as safe as possible within its business environment and partly about the thinking time that goes into how risk is to be strategically addressed and managed within a framework for success.

Next month the final three stages of the 7 "s" model.

About the Authors

Director

Australasian Risk Management Unit

Faculty of Business and Economics