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Archive for September, 2017|Monthly archive page

An Organisation Risk Pendulum

In crime, fraud, Risk Management on September 9, 2017 at 7:17 am

“Risk is often misinterpreted as a bad thing; however, it is not. Business needs risk to grow and thrive. Understand it, take risks which help you fulfilling your purpose. The key question remains how to balance risk pendulum in the organizational life”.

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If your company offers a unique product, any risk which provides a value to the product or customer is worth considering, however, the proportion should not be increasing 50% risk for a minuscule value to the customers. Think twice whether you are capable of handling enhanced risk for value creation. If you are unable to handle it, build capacity and then take the proportionate risk. On the other side, some risks are inherent in the business. For example, fraud risk. You will be surprised to know that fraud risk is often considered strategic risk. Tightening of controls in the business may be considered as a constraining activity in short-run but imagine in the long run, employees say that these frauds happened under the nose of senior management and question their integrity? What is the relevance of board, risk management team, auditors and audit committees in such instances?

A country with negligible crime rate (i.e. Dubai) attracts high investments while a country (i.e. Nigeria) with relatively very high crime rate has to struggle in inviting investors. Do controls play a positive role in business? Yes, it not only reduces the risk but also provides efficiency to the business with a potential of strategic advantage.

Many of us heard that after 2008 crisis, some large organisations are reluctant to take further risks. Does it mean they are over-matured and declining, or markets are exhausted, or they have just become risk averse for some period? This shows how a crisis impacts the speed of the Organisational Risk Pendulum. When the speed is low, what these organisations do – sit idle, focus on weakest links in organisational process or improve their strength in one or two core domains or simply learn from others mistakes. Over and above this, some companies wait for the crisis to occur because they are expert in dealing with crisis situations. For example, Business Continuity experts get maximum business after a crisis. Enterprise Risk Management and Risk Governance experts do the same, many consulting and credit rating companies take over the customers and markets. A more generic example is a doctor. When a pandemic spread in the society, doctors suddenly become highly in demand. It is clear that investment in risk management enhances the organisation capacity to maintain the speed of organisational risk pendulum during the crisis while it provides confidence to retain the speed in normal and volatile market situation.

Another key question arises How to drive your organisation at a speed to maintain an equilibrium between the risk of riskiness and risk of safety? What is right – Riskiness, stability, survival?

I believe all are important as Enterprise Risk Management (ERM) by definition maintains a balance in downside and upside of risk and uncertainty and considers all risks holistically. Knowing your organisational risk at integrated level provides a strategic direction to the company. Don’t wait. Know what you don’t

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