Achieving the Right Friction Between Business Opportunities and Risk Management

Yesterday, Capco published a new white paper that focuses on the newand heightenedrole that risk management should play in operating a successful financial institution in today's economy.

Although written for banks and financial organizations, the eight-page report, titled "Enterprise Friction: The Mandate for Risk Management," is filled with solid, fundamental advice that applies to businesses across the board.

For example, according to Sandeep Vishnu, author of the report, the key to successful enterprise risk management is the application of well-balanced "friction" that's designed to help organizations avoid unnecessary losses and respond effectively to the threats and vulnerabilities to which they are exposed.

Vishnu says:

" risk management isn't about playing it safe; it's about playing it smart. It's about minimizing, monitoring and controlling the likelihood and/or fallout of unfavorable events caused by unpredictable financial markets, legal liabilities, project failures, accidents, security snafus even terrorist attacks and natural disasters. There's always risk in business, and risk management should be designed to help companies navigate the terrain.

Sure, risk management may at times call on companies to pull back on the reins, and it certainly isn't free. However, risk management provides a counterpoint to enterprise opportunity friction, if you will that not only avoids unnecessary losses, but enhances the ability of organizations to respond effectively to the threats and vulnerabilities to which they are exposed in the course of business."

In order to achieve the right risk management friction, Vishnu advises organizations to make strategic business decisions and risk assessments in tandem. That approach, he says, creates a dynamic, even symbiotic, interaction between the two.

I agree. As I've posted about before (see here and here, e.g.), mitigating risk today involves taking a holistic view, one that transforms your risk management efforts into a strategic advantage.

The report outlines steps organizations can take to achieve their appropriate level of friction:

Rethink risk management as a strategic function rather than as a necessary evil,

Integrate risk management into the front end of business process development,

Leverage data as the foundation for a risk management program, and

Nurture a culture of risk awareness, accountability and action.

As Vishnu points out, risk management shouldn't be a "bolt-on" activity. Instead, it needs to be integrated into your company's business culture, so that risks can me effectively and efficiently mitigated.

TAGS: Finance
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