Worth The Risk

by Shirley Liew, Dynamic Business

Risk has had a lot of bad press, making it almost a dirty word and something to be avoided. Shirley Liew flips that concept and looks at risk as an opportunity to grow your business.

Entrepreneurs know all about taking risks and the rewards they can bring. But few businesses actually take a managed approach to dealing with risk and using it to grow their business.

The basic rule of risk-taking is if you don’t fully understand the risk you shouldn’t engage in it, regardless of what profits are claimed or reported. Unfortunately, companies and individuals violate this basic rule as promises of impressive returns entice many to participate in fraudulent activities. Think of Enron, HIH, OneTel, or National Australia Bank: all examples of companies that did not effectively manage their risk.

The business world is full of risks. There are the operational risks such as worrying about whether your business can continue if your IT system fails, or if the office burns down, and you need to consider threats like terrorism, theft, or the failure of your customers’ business. As a manager you also have to ensure you comply with continually evolving regulatory changes such as the Occupational Health and Safety (OH&S) laws, anti-money laundering, or the new workplace relations legislation. And of course there is financial risk and the increasing burden of compliance, particularly for listed companies.

It is no wonder that executives tend to think of risk as something to be avoided, managed, reduced, hedged, or sold to others. However, forward-thinking managers are starting to take control of the risks facing their business, adopting an approach called enterprise risk management (ERM). This allows businesses to take more risks, achieve planned outcomes, and minimise the chance of failure by making informed decisions.

ERM is a company-wide process, driven by senior management, which considers the potential risks facing the organisation and seeks to manage them in a way that supports the overall business objectives. The principle of ERM is about taking a positive approach to identifying risks and turning them into opportunities to grow the business.

Because risk and opportunity are inextricably linked, past conventions and attitudes about risk as a hazard or threat have resulted in too narrow a view of the role of risk management in business. The traditional approach to risk has been to see risks as isolated one-off threats, not part of everyday business. Risk management is often an afterthought and an appendage to the core business. The ERM approach turns this notion around and states that risk management:

• is everyone’s responsibility, but the business leader sets the tone for how the business approaches it;
• is a culture, a way of thinking, not a product or a transaction;
• should be pervasive across the organisation, embedded within the culture and business management, not an ‘add-on’;
• reflects a formal and systematic approach;
• should be indistinguishable from business management;
• must focus on risk in the context of the whole business, not isolated incidents.

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