RISK: How to be a midfielder in risk management

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RISK: How to be a midfielder in risk management

Managers need to think about offence too

Staff on June 8, 2016

RIMS Executive Report “Risk Taker vs. Risk Manager”

In a game of soccer, a midfielder has two jobs. Defend against incoming advances and help move the ball to the offence.

That’s an analogy a new RIMS report makes about risk managers. They’re meant to think of the negative and the positive, but the latter is usually forgotten.

McDonald’s is a popular example of risk-taking done well. The fast food chain, like many others, had to wade through a number of growing obstacles. Consumers were becoming more interested in burger spots like Shake Shack and Five Guys. Meanwhile, costs were rising as minimum wage increased. So in 2009, the company branched out into completely new terrain with coffee and pastries at McCafé. With its success, McDonald’s and its CEO Steve Easterbook are enthusiastic about pursuing more risk.

When managers focus on the negative, they create tension between themselves and the forwards of their business—the risk takers. Risk managers are trained to think about what could go wrong, but how those points are communicated can change everything.

Managers are usually well versed in enterprise risk management, but to start working on the offensive, the author suggests embracing strategic risk management services. It’s really a shift in approach with several layers. Managers need to make sure they’re thinking about the whole picture when assessing a situation. They need to keep the organization’s overall goals in mind, as well as make sure the information they’re using is up to date. All of that needs to be communicated well and, the report stresses, in a positive way. (“No one wants to develop a ‘Chicken Little’ reputation where the sky is always falling.”) Talk about value and ask constructive questions like “How are you going to do it?” or “What do you need to get there?”

The report also touches on how managers should be discussing outcomes. It suggests moving toward often difficult-to-find quantitative data over qualitative analysis. That may involve becoming familiar with tools that other parts of the organization use more frequently like sensitivity analysis Monte Carlo simulations, deterministic sensitivity analysis and tornado diagrams.

The report looks to LEGO Group to explain what SRM looks like in practice. ERM is part of the natural process at LEGO and the team reviews risk annually or semi-annually, identifying 100 risks. They use Excel and Monte Carlo simulation (a model that looks at the probability of different outcomes and the effects of random variables) to measure the effects of a risk against how much the company can tolerate. Those tools also help consolidate the data and give the team a better understanding credit risk.

When the company considers a new project, it naturally looks at both the risks and opportunities. Senior director of risk Hans Læssøe focuses on showing how that risk can turn into growth. With that mindset, LEGO’s resident SRM team considers future trends and leads a workshop to help the leadership team pinpoint uncertainty in their plans.

University of California ERM manager Carrie Frandsen explains it best in the report when she says that risk management has the opportunity to evolve. By improving analysis, risk managers can provide support to leadership and have a bigger hand in helping a company move forward.

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RISK: How to be a midfielder in risk management