Recurring Themes and New Ideas:
Observations from NCSU’s ERM Roundtable Summit in its Tenth Year
After ten years of ERM Roundtables, there are some themes that seem to recur but there are also some areas where you can clearly see that progress is being made in getting a better grip on the uncertainties organizations face. At the same time it is clear that we still have a ways to go in finding better ways of framing the risk discussion and making risk intelligent decisions.
Larry Baker of Devon Energy opened the session by sharing his varied experiences in working both as a consultant to and a risk leader within organizations with enterprise risk management functions. He offered this piece of advice: “Do nothing unless it contributes to the success of your organization.” Risk professionals need to be able to articulate how better risk management practices will increase the odds that organization’s will achieve their strategic objectives. Here at NC State’s ERM Initiative we have always advocated for starting with an organization’s strategic objectives and then working from there to identify the risks that could potentially prevent an organization from achieving those objectives.
Both Larry Baker and the next speaker, Jeff Brown of H&R Block shared their organization’s risk assessment processes. In the early years of these Roundtables we put a lot of emphasis on the mechanics of performing a risk assessment: developing rating scales for probability and impact, choosing a time frame, etc. It seems that now we are moving beyond that. Jeff noted that the assessment was an important foundation, but we should be careful not to get stuck on it! Larry’s view was that the real value is gleaned from the discussion that ensues once you have the results of the assessment. We are hearing more and more that the best practices are those that generate a rich and challenging conversation about the critical risks the organization faces..
At the same time it is all too easy to become complacent about risks. Jeff Brown shared insights on crisis planning, suggesting that many organizations that have not yet faced a true crisis may be in self-denial, thinking it couldn’t happen in their organization. Jim DeLoach of Protiviti echoed that sentiment in discussing the over-confidence some organizations have in their ability to execute a plan or prevent risks from happening. It reminded me of a roundtable speaker from several years back who observed that those who were most confident they “had it covered” were the ones least likely to actually have it covered! Jim’s advice was for organizations to focus on being prepared to address common impacts that could result from risk events rather than trying to imagine the entire gamut of “crazy scenario’s” that could potentially unfold.
Jeffrey Lovern of Genworth Financial wrapped up the session by discussing some of the risk metrics being used by insurance regulators that could have broader applications in risk management. He touched on risk appetite and the search for the “magic metric” to express it. This really resonated with me as I have seen so many organizations struggle with this concept. Most have come to the realization that there is no one metric, but rather like so much of ERM, each organization has to come up with their unique set of metrics. Jeffrey offered some great ideas about looking at risk adjusted return on capital and using that metric to incorporate risk information into strategic decision-making.
At one point in the day one of our speakers repeated a refrain that I have heard on many an occasion regarding the practice of enterprise risk management – it is more art than science. That is still very true today. We may not yet have, and may never have, a masterpiece of an ERM process, but we are getting better and better. There is certainly a growing appreciation for the value that an effective ERM process can deliver. Our art is moving off the refrigerator and is now going to the frameshop.
Mark your calendar to join us in Raleigh, NC for our Fall 2014 ERM Roundtable Summit on Friday, November 14, 2014. Click here for details.
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