Risk management for leaders
“As human beings,” says Mike Vernon “most of us are averse to loss, injury, reputational damage, social rejection and anything that makes us experience feelings of pain or rejection. Risk is anything that could cause any of those to happen for us.” Mike is MD of Consulting People Ltd, and, along with his co-founder Gill Avery, runs Westminster Business School’s Leadership Workshop – Risk Management for Leaders: Identifying and Leveraging Concealed Risks,
Managing risk at the organisational level involves having a perspective that reaches across all areas where loss can occur. “We’ve got pretty smart technologically at predicting some risks,” Mike says. “In oil fields for instance. Insolvency too – the liquidity risk”. But there are other – “latent” risks that are, by definition, much harder to spot.
As Mike discovered early in his career, the way businesses are structured and organisations function can act to introduce risk.
“I assumed I was an exceptionally good manager until I ran into a number of problems which, I realised, were caused not by the people where the problem surfaced, but by the way I’d configured their responsibilities. I had failed to consider how those responsibilities tracked into an end-to-end process.”
Risks introduced by organisation structures
“As I thought about it, I realised that most people train to manage, to think, and have subject matter expertise – in my case electronics and sociology. I discovered that what got in my way was simply a failure to understand that unless we consider the whole process and how each of us contribute to it, we introduce risk rather than managing it.”
Mike went on to develop high-level expertise in uncovering the hidden connections between causation and business results by working at board-level in large companies. He mentions one client whose cost reduction strategy “actually put their costs up” and another whose introduction of Total Quality Management led, “as their inspectors found more defects and the rework piled up”, to an increase in costs that “caused them to fall behind in the competitive stakes as their profitability dropped”.
Focus on processes, not hierarchies
“We discovered that the technical tools, the logic, the rationality, the thinking, the experience, were all present. However, if people to thought of their organisation in terms of structure, roles and responsibilities, they proved reluctant to step outside their responsibilities or their role within the hierarchy that the structure dictated, unless someone in power gave them authority to do so.
But, where we could move towards end-to-end process thinking – complex adaptive system thinking – geared to producing exceptional value for customers and clients, and then look at issues of contribution and outcome, as opposed to roles and responsibilities, we could get a much better result.”
Identify and leverage latent risk
Participants attending Mike and Gill’s Leadership Workshop will learn to use the tools Consulting People Ltd have developed to assist leaders to identify and leverage latent risk.
“We use a diagnostic tool called the Enterprise Risk Maturity Evaluation, or ERME,” says Mike.
This looks at the level of maturity within the professional, managerial and cultural cycles of an organisation, and creates a benchmark for you to consider where you are, and where you actually need to be in your enterprise risk maturity in order to successfully implement specific projects or other activities in your organisation.
What we’ve found is, that unless there is a real communication between the professional, managerial and basic workforces of an organisation, then latent risk can be embedded into the processes, through work-arounds, trade-offs and deals that are done that are invisible, and other ways people find an accommodation to the working situation that they’re in. Latent risk emerges when people design specific things they wish to implement through projects, which are not achievable because the culture cycle will work against them.”
But, according to Mike, leaders can transcend this by
- figuring out the gap(s) they need to close
- designing interventions to projects in ways that allow people who are involved in those projects to build their capability
- participating in that learning process with the people who are involved in the day-to-day work
“That way, a project commissioned to meet a particular need and produce a specific outcome, creates a learning system in which the continuous process of building capability works to build the maturity of your organisation professionally, managerially and culturally.”
Watch Gill and Mike talk about their Leadership Workshop
Essential risk management resources
The Institute of Risk Management website has a Knowledge and Resources section providing guides and briefings, information about risk management standards, case studies, blogs and more. Some of the content is publicly accessible, the rest can only be reached if you log in as a member.
You can also test your own risk intelligence on the Projection Point website.