Aon just released a study that SMBs need to pay attention to. It showed that those organizations that adopted a more advanced focus on risk management saw benefits that include enhanced shareholder value, a reduction in their total cost of risk, strengthened business resiliency and increased operational efficiency.
In past posts like ‘Will Organizations Start Listening to their Risk Managers?‘ and ‘An Ounce of Prevention: Does Risk Management Really Work?‘ we’ve discussed the importance of risk management and its role within different organizations. In 2010, the data and research supporting risk management is starting off strong with Aon’s recent release of its 2010 Global Enterprise Risk Management Survey findings. Conducted in the third quarter of 2009, this report identified current trends in risk management based on data collected from 201 respondents.
The overall findings are positive and encouraging for those of us who are forever rallying for a more widespread and in-depth adoption of risk management at the organizational level. Of the 201 respondents, 55-percent expressed that their risk management efforts included policies and procedures developed to identify, measure, manage and monitor risks; an increase of 20-percent since Aon’s 2007 survey.
For respondents, the primary drivers for incorporating Enterprise Risk Management (ERM) into their operations included improved governance and transparency, the adoption of best practices, and improved performance and decision making. A strong portion of respondents were seeing the benefits that the successful implementation of ERM could bring. Notably, this included having a better overall understanding of their organization’s needs, culture and operations.
Here are the hallmarks of a successful ERM approach as identified by (and taken directly from) Aon’s report:
- Board-level commitment to ERM as a critical framework for successful decision making and driving value.
- A dedicated risk executive in a senior level position who drives and facilitates the ERM process.
- An ERM culture that encourages full engagement and accountability at all levels of the organization.
- Engagement of all stakeholders in risk management strategy development and policy setting.
- Transparency of risk communication.
- Integration of financial and operational risk information into decision making.
- Use of sophisticated quantification methods to understand risk and demonstrate added value through risk management.
- Identification of new and emerging risks using integral data as well as information from external providers.
- A move from focusing on risk avoidance and mitigation to leveraging risk and risk management options that extract value.
So we see that risk management is beneficial for large businesses and that the financial and competitive advantages can be substantial. What about small and medium-sized businesses (SMBs)? How can they learn and benefit from the returns on risk management seen by large organizations?
Because SMBs have the same risks as large companies but on a smaller scale, most of the elements of risk management employed by large organizations can be adjusted to apply to small and medium-sized organizations.
How do SMBs adapt?
- Get buy-in from the organization’s most senior employees.
- Have one employee responsible for facilitating the risk management process.
- Create an organizational culture of risk management; one that encourages full engagement and accountability for all employees.
- Include your stakeholders in risk management strategy development and policy setting.
- Employ transparent risk communication.
- Consider all aspects of your financial and operational risk as a part of your decision making process.
- Quantify and measure the value of risk management in regards to the organization’s financial and operational risks. (ie. impact on insurance, fleet risk, supply chain risk, employee safety risks).
- Be proactive in identifying and preparing to manage the risks that face your organization.
- Don’t just focus on risk mitigation and avoidance. Think about how you can use risk to access new opportunities and growth.
What if your company could make better and more informed decisions? What if you could make your organization more profitable with less downside? All of these things can be accomplished through risk management. And the best part is, it isn’t nearly as complicated as you think!
Picture via user yarranz at sxc.hu