Category Archives: Enterprise Risk Management

RIMS Honors the Best in ERM

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MIAMI – Enterprise risk management (ERM) continues to gain momentum in boardrooms around the world as it is increasingly being considered an essential element of an organization’s strategic planning process.

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In recognition of one organization’s efforts to successfully align its ERM program with its strategic objectives, thereby enhancing its resiliency and operational efficiencies, RIMS presented the 2014 ERM Award of Distinction to Malaysian-based Astro Overseas Limited at the RIMS ERM Conference in Miami.

The award was presented by Lori Seidenberg, senior vice president of insurance and risk management at Hunt Companies and member of the RIMS board of directors and was accepted by Ghislain Giroux Dufort, president of Baldwin Risk Strategies, on behalf of Astro Overseas Limited (above). It recognizes Astro for successfully implementing and sustaining an ERM program across multiple investments in a diverse mix of businesses in the media and broadcasting industries.

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The program is an extension and evolution of the group enterprise risk management program implemented at Astro Malaysia Holdings Berhad, which is Astro Overseas Limited’s sister company, and the main source of operations for television and radio broadcasting activity. The program not only allowed the organization to better manage its IT and cyberrisk vulnerabilities, but prompted its board of directors  to include enterprise-wide risk assessments and related investment and risk performance dashboards as part of the organization’s strategic decision-making process.

“It started as a process to address operational risks but our leadership quickly realized the value our ERM program can add to achieving strategic objectives,” said Patrick Adam K. Abdullah, vice president of ERM at Astro Overseas Limited. “It’s our hope that sharing the success of our ERM program will inspire others to advance their own risk programs and highlight the impact such a program can have on an organization’s ability to navigate exposures and leverage new opportunities. It is a tremendous honor to be recognized with this prestigious award.”

Honorable mention for this year’s ERM Award of Distinction went to Schaumburg Ill.-based American Agricultural Insurance Company and was accepted by Lorie Graham, the company’s senior underwriting and corporate risk manager (below).

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As a result of its ERM program, the company was able to reduce uncertainties caused by severe weather by reassessing corporate goals, developing a diversified income base and grow surplus.

“Whether it is global expansion, the use of new technologies or even outdated operational practices, ERM continues to prove to be an effective risk management approach that propels organizations, regardless of industry, to reach and exceed expectations,” said Carol Fox, RIMS director of strategic and enterprise risk practice. “The judging panel for the ERM Award of Distinction was impressed with the complexity and quality of all of the submissions and congratulates Astro Overseas Limited for winning this top honor.”

Judging criteria for the ERM Award of Distinction includes the scope of the ERM program and how it engages different levels throughout the organization; the program’s link or connection to the company’s overall mission; and its ability to create additional value for the organization.

Controlling Employee Crime

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Employee theft costs businesses billions of dollars annually and it is on the rise, the U.S. Chamber of Commerce reports. Strategies for controlling these thefts include pre-employment screening, installing procedures to make theft more difficult, improving employee job satisfaction and maintaining a policy of apprehension and prosecution, according to The Hanover Insurance Group, Inc.

“Business owners spend a significant amount of time and resource protecting their business from a variety of risks, whether it’s liability for their products or services or severe weather,” Helen R.

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Savaiano, president of management liability at The Hanover said in a statement.

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“But, what can sometimes be overlooked are the risks presented by unscrupulous employees and unfortunately those types of losses happen more often than business owners think.

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”

In support of Crime Prevention Month, the company offers insights into the most common crime schemes and steps business owners can take to help prevent these schemes within their own companies.

What business owners can do:

Organizations should make sure there is clear accountability for every position and that no position has broad enough power to authorize payments without another individual’s consent. Companies also need to establish a system of checks and balances and set up an anonymous tip line to encourage reporting of any suspicious activities or business practices, The Hanover said in a report.

The Many Paths to a Career in Risk

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Over the years, I’ve had no shortage of people ask me how they can get my job as a senior risk leader. They see the possibilities and get a strong sense that risk management just might be a pretty interesting career track. Oftentimes these folks are sitting in some insurance related sub-function within the broader industry, anything from claims to loss control to underwriting and brokerage. Interestingly, many people who have had this experience (who are essentially developing specialists in these sub-functions) have frequently found that skill transferability from these specialized areas, to their “profession,” was often fraught with hurdles.

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I have seen a parallel mind-set throughout much of my career in various industries in which I sought alternate employment. Most commonly it was in the manufacturing or health care sectors that insisted that any leader in their ranks, most especially a risk manager, needed to come from within their industry. They were the true believers and were typically inflexible about this minimum requirement.  They believed their industries were just too specialized and unique for a risk manager from another industry to succeed. They would argue that they didn’t want to invest in allowing the development of the full skill-sets or that their world could or should be learned by those coming from other industries, especially for a mid- to senior-level manager.

Needless to say, I disagreed vehemently with this view and with others in the insurance industry holding these inflexible positions, often to their detriment. Happily, in the last five years, some more progressive leaders in certain industries like health care are beginning to revise these positions in favor of seeing the value in having the new eyes, ears and perspectives that can only come from those experienced in industries other than their own. A good trend indeed.

As a practical matter, I have to mention that my most recent career move into a more strategic, brand enhancing role with a third party administrator has flummoxed a few peers and friends. These folks saw me as moving in the wrong direction, when in fact I was taking a substantive leap forward into long term strategic contributions that have, in fact, been the perfect segue to where I’d wanted to move at this point in my risk career. Coincidentally, my forte since 2001 and the future of the discipline, enterprise risk management, calls for a very specific move in a strategic direction that aligns with the long term interests of enterprises and their commitment to mission accomplishment.

So is there a preferred best strategy to preparing for a career in risk management? The truth is that while many of us developed the skills and experience that have been most valuable by rotating through the various insurance industry disciplines, there are now myriad ways to find your path into risk management and make it a career. From finance to legal to audit and especially spending time in operations, all these experiences pave part of the way toward success. They are a portion of what risk leaders need most to succeed in this era of a broader more diverse practice of risk management, call it enterprise risk management, strategic risk management, international risk management or just plain risk management, as I prefer.

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In fact, a successful risk manager is one who needs a broad exposure to most core functions common to almost all entities of any complexity. At the end of the day, it’s hard to go wrong in preparing for a risk career, no matter where you spend time getting knowledge about the many sources of exposure that must be “risk managed.”

RIMS Risk Maturity Model: Root Cause Discipline

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After the last article, which discussed the first two attributes of the RIMS Risk Maturity Model (RMM), ERM Based Approach and ERM Process Management; our focus here is on the third attribute, Root Cause Discipline.

Root Cause Approach

In Washington, D.C., officials tried, but were nearly helpless in stopping the deterioration of the Lincoln Memorial. Rather than address the damage with costly repairs, they instead traced the concern back to a root cause. Deterioration was caused by the high powered hoses needed to clean the building—which were necessary because the building was an attractive home for birds.

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Birds were drawn to a very dense population of insects, which were attracted to the bright lights of the memorial.

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So how do you stop the Lincoln Memorial from deteriorating? You dim the lights.

The root cause methodology provides clarity by identifying and evaluating the origin of the risk rather than the symptoms. Unveiling the triggers behind high level risk and loss events point to the foundation of where an organization is vulnerable.
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Uncovering, identifying and linking risk back to the root causes from which they stem allows organizations to gather meaningful feedback, and move forward with accurate, targeted mitigation plans.

To illustrate an example in a business environment, consider the risk of inadequate training. Within an organization, there may be multiple departments experiencing risk regarding their training policies, procedures and documentation, yet each area is likely to be recording and recognizing this risk in its own way. The result is an extensive amount of information recorded in spreadsheets that requires time and energy to sort and sift through. By identifying the root cause, a risk manager can expose the underlying commonality between departments and their concerns, allowing more effective identification and mitigation of systemic risk.

Applying root cause to your current approach

To integrate this type of approach to an enterprise risk management (ERM) program, you must first identify the root cause foundation of your organization. The RMM is built on five root cause categories which cover all enterprise risks:

  • External – risk caused by third-party, outside entities or people that cannot be controlled by the organization
  • People – risks involving employees, executives, board members and all those who work for the organization
  • Process – risks that stem from the organizations business operations including transactions, policies and procedures
  • Relationships – risks caused by the organization’s connections and interactions with customers, vendors, stakeholders, regulators  or third parties
  • Systems – risks due to theft, piracy, failure, breakdown, or other disruption in technology, plant, equipment, facility, data or information assets

Understanding which core area of the organization a risk stems from provides the ability to effectively understand and mitigate the risk. For instance, theft from an external third party is very different than theft from an internal employee, and will thus have a very different response and mitigation strategy.

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One strategy would require an investment in IT or infrastructure, while the latter would need an HR policy change or new ethics program.

Looking for an example of root cause? Download our complimentary Risk Assessment Template.