Tomorrow is World Risk Day. It will be the first ever World Risk Day. But in reality, it’s a moment more than a decade in the making.
Starting with 9/11 in 2001, the world has seemingly become exponentially more risky by the day. From Enron to Katrina to pandemic scares to cyberattacks to the 2008 financial collapse to the BP oil spill to Japan’s earthquake to the ongoing eurozone crisis to JPMorgan’s trading loss, transformative moments and trends have continued to shape and re-shape the way businesses, organizations and governments think about risks they face. (Here is a look back at the last decade of risk.)
In 2012, risks are more interconnected and potentially more devastating than ever before.
For this, breaking down organizational blindspots and miscommunication is more important than ever. Risk management must become a priority across the entire culture. And for this, organizations need enterprise risk management.
While many businesses have recognized this and adopted ERM (or at least ERM principles), government uptake lags. That is unfortunate. Because as the folks who put together World Risk Day note, here are five very good reasons why government agencies need enterprise risk management.
- Proactive management of risk. Whether its economic meltdowns or global health scares like H1N1, the government faces more widespread, complex risks than any other type of organization. Today’s citizens want a government that not only manages the consequences of risk, but also anticipate and handle issues before they turn catastrophic. Effective risk management policies help to force all decision makers to think and work proactively.
- Organization-wide visibility. ERM practices provide government agency leaders with visibility into their organization’s entire portfolio of programs. This practice not only improves transparency across departments, but also helps break down silos between each program – greatly improving proactive communication about risks and the sharing of best practices.
- Budget management. Given large federal budget deficits and an unsustainable long-term fiscal path, program managers for government programs are challenged to anticipate and manage the impacts of budget re-allocations and continuing resolutions. A strategic risk management approach will aid in this challenge and enable organizations to stay on budget under notoriously fluctuating circumstances.
- Reputation development and protection. Reputation is an intangible indicator of past performance and future success. For government agencies, a solid reputation is a critical asset. ERM can not only help an organization to identify reputational risks in advance, it can also improve the agencies reputation by improving program delivery timelines, ensuring more accurate bids and stronger customer relationships.
- Improved reporting for improved decision making. Lack of information, control and time are the major drivers of the risks facing government organizations. An ERM plan, and ideally an ERM technology that goes beyond just spreadsheets, helps to ensure that real-time, data-driven, interactive reports are delivered to all necessary parties.
I couldn’t agree more with your statement that “risk management must be a priority across the entire culture.” Infogix, the company I work for, helps organizations automate the monitoring and reporting of information errors as part of their ERM policies, addressing the point you call out about “improved reporting for improved decision-making.” What we have noticed is that it’s crucial to go beyond working with a customer’s risk managers and auditors, as effective ERM requires involvement across all departments including IT, business operations and the C-suite. Also, that a reliance on technology alone is inadequate and that organizations must regularly train employees on policies and best practices, not just once for new hires.
Thanks for the nice overview on ERM! Budget management resonates with me as most of our governments are becoming financially weaker. The risk seems to be getting even larger as the problem is such a global one, whether you look at Europe, India or the US. Hopefully our governments will be more diligent with their risk management.