The culture of risk also in business

Posted on July 07, 2020 | Darys Estrella

"Strategic decisions must be made and risk maps must be drawn up to reveal their magnitude." These days I have been reflecting on the actions that each of us take when we have to face a risk...

"Strategic decisions must be made and risk maps must be drawn up to reveal their magnitude."

By Darys Estrella *

These days I have been reflecting on the actions that each of us take when we have to face a risk. For example, with Hurricane Irma.

It is a fact that our country is on the hurricane route. Also that every year, from June to November, we are exposed to the onslaught of tropical storms and increasingly strong cyclones. It is a fact that a large percentage of people are not prepared to face such an event. And also that we have no control over the natural phenomena that plague us.

With the arrival of Hurricane Irma, I was able to validate the following: many think that this kind of meteor will not affect them. Many do not have an emergency plan and action at hand. Many leave all last minute preparations. In terms of risks, being prepared to face them has a cost, but the cost of not being so is usually much higher.

The same thing happens in companies. Days ago, the results of a study on the 10 challenges to improve the functioning and quality of government of the Boards of Directors in the Dominican Republic caught my attention. The study interviewed 25 experts in corporate governance linked to consulting firms operating in the country, academics and members of boards of directors of Dominican companies.

In order of priority, of the 10 challenges identified, the topic of Risk Management ranked number nine.

If the actions carried out by companies, in accordance with their strategy and for the fulfillment of their objectives, were free of risks, then there would be no place for competition and the development of competitive advantages and their differentiation.

It is difficult to manage risks that are not known or are not present in the day to day. This is the particularity of business management: highly agreed strategic decisions must be made and risk maps must be drawn up to determine their magnitude, that is, their probability of occurrence and the impact on the organization to manage them appropriately and in a timely manner. . Risks such as economic and financial crises, political issues, market trends, operational management, production costs, catastrophes or environmental issues can be mapped; talent management, competition, relations with stakeholders, information technology issues and the company's reputation, among others.

The risk map is a very useful tool that allows information to be organized, management strategies to be defined and threats or problems to be determined, all depending on the importance and probability of occurrence.

A risk cannot be eliminated 100%, but it is possible to create a culture in the company that makes it more difficult for an event or person to put the company in a difficult situation. How to prepare a risk map?

  • Identify those risks, potential weaknesses, and consequences across the organization.
  • Weigh the dangers and factors according to their degree of impact or probability of occurrence.
  • Evaluate the risk generators and perform a critical analysis of the controls established to mitigate them, to know the true exposure of the company.
  • Define risk indicators (KRI), which allow evaluating the probability of uncertain events and provide useful evidence to quantify the consequences of these.
  • Design both preventive and corrective measures.

Implementing a culture of risk in the company generates many benefits: it favors the identification of threats, obstacles and opportunities; increases the chances of achieving goals; drives proactivity; improves the adaptation of the company to the social and economic environment to which it belongs; enhances the confidence of interest groups; facilitates decision making; fosters the transformation capacity of the company; promotes teamwork and ensures the sustainability of the company in the long term. In summary, having a culture in this sense is very important. As an individual or as a company it facilitates decision making, the execution of actions and allows us to face adversities in a safe and sustainable way. Faced with the threat of a risk, the cost of not taking precautions is usually the highest.

Published in Forbes Magazine November 15, 2017.

Source: Guest Forbes