Managing risk and performance in business

Introduction

When an organisation sets its vision, mission and strategic objectives, it then develops a plan to implement the fore mentioned. A forward looking enterprise will also develop a performance management and monitoring system and identify Key Performance Indicators (KPIs). These KPIs, when monitored, tell management whether they are on track to meeting their objectives.

 Problem statement

The recent global crises sprung many surprises worldwide. Large organisations considered too big to fail have failed, or had to be bailed out, taken over or otherwise rescued. In most of these organisations, the KPIs said the company was on track to meet and exceed stakeholders’ expectations, before the unexpected happened. The risks that their objectives would not be met, and that failure instead of success would be their result was never envisaged. This is in spite of the fact that all these organisations had an active risk management function.

The problem is that many organisations treat Performance and Risk as totally unrelated entities. Performance and risk managers sit at different ends of the building looking at different things, when they should all be looking at the same thing from two different perspectives.

 Previous options

In many organisations, the risk management function is looking at the universe of known ‘traditional risks’ while the market and climate are changing dynamically, throwing up new risks not thought of before. If the company was exposed to traditional risks then traditional risk management would identify and manage it. If the company was exposed to ‘new’ risks then the organisation would only find out, after the fact of failure. Many organisations do not know that they can predict the risks that they will run, even in situations of uncertainty.

 Clement Ashley Consulting’s solution

Clement Ashley Consulting recommends an enterprise-wide risk and performance management process and system that aligns strategic goals to ‘performance’ as well as ‘risk.’ It will not be a perfect ‘line of sight,’ but the relationship between the strategic objectives the organisation wants to achieve and the risks it runs including new risks that it may run, are identified and managed in one unified performance and risk management process. For every objective and initiative there will be both Key Performance Indicators (KPIs) and Key Risk Indicators (KRIs).

Ijeoma Rita Obu is the managing consultant/CEO of Clement Ashley Consulting. To post a comment or question visit her blog riskmanagementandperfromance.blogspot.com or improvingriskmanagementandperformance.blogspot.com, robu@clementashleyconsulting.org

Answers to readers questions will be incorporated in subsequent articles.