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 (KPI’s). These KPI’s, when monitored, tell management whether they are on track to meeting their objectives.
The recent global crises sprung many surprises worldwide. Large organizations considered too big to fail have failed, or had to be bailed out, taken over or otherwise rescued. In most of these organizations the KPI’s said the company was on track to meet and exceed stakeholder 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 organizations had an active risk management function.
The problem is that many organizations treat Performance and Risk as totally unrelated entities. Performance managers 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.
In many organizations the risk management function is looking at the universe of known ‘traditional risks’ while the market and climate is 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 organizations 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 (KPI’s) and Key Risk Indicators (KRI’s).
This can be done in the following five steps;
- Strategic Management and Enterprise-wide Risk Planning In the first step the strategic plan and enterprise-wide risk management plan will be articulated,and developed and documented as a result of a facilitated retreat
- Strategic Mapping – In this step the organisation will identify the cause and effect linkages between the goals it wants to achieve and the actions it must take. It will also identify the risks that it runs in achieving those goals as well as the cause and effect linkages between those risks and the risk drivers.
- Performance and Risk control systems design– Having mapped the goals to the action steps or initiatives, these initiatives should be assigned to owners (staff members). Measures of success for achievement of those goals as well as targets, triggers, milestones, deadlines and review frequency should be developed for subsequent monitoring and control. In addition identified risks will be assigned to risk owners. Measures for managing those risks as well as targets, triggers, milestones, deadlines and review frequency should be developed for subsequent monitoring and control.
- Performance and Risk Monitoring – According to the review frequency for each initiative and/or risk, monitoring should take place with an emphasis on taking corrective action where triggers have been pulled or where targets, milestones and deadlines are behind. The risk monitoring results should update the risk logs.
- Evaluation and Appraisal – At the designated cut-off period a formal evaluation and appraisal should then be carried out. Having completed the four earlier steps, nothing should come as a surprise to the organisation, risks would have been managed within tolerance limits and performance would have minimal variances from plan.
Using this approach your focus is on corporate goals and objectives, providing the best possible environment for achieving them, while managing and mitigating enterprise-wide risks.
Using this approach you will have the ability to identify new and emerging risks that can affect achievement of your goals.
Using this approach you are able to streamline resources and avoid duplication of effort.
Using this approach you are able to take advantage of uncertainty and even exploit risk, for improved performance, to the organization’s advantage.
Managing performance and risk together in a holistic fashion, drastically reduces cost, increases focus, maximizes results and gives the organisation a strategic competitive advantage over its peers, that manage risk and performance in separate silos.
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