Mastering 21st Century Enterprise Risk Management - 2nd Edition (eBook)

The Future of ERM - Book 1 - Executive's Guide

Gregory M. Carroll (Autor)

eBook Download: EPUB

2021 | 1. Auflage
160 Seiten
Bookbaby (Verlag)
978-1-0983-7272-9 (ISBN)

Infos

'Mastering 21st century Enterprise Risk Management' is an Executive's Guide for transforming ERM from an overhead to a value-adding driver of growth. It combines the best of ISO 31000 and COSO ERM to deliver bottom-line returns. By linking risk to strategy using Scenario Analysis, Bayesian modeling, and aggregating their effect, it allows organizations to fulfil the primary directive of ISO 31000 - managing the uncertainty in strategic objectives. In the post COVID business environment, managing uncertainty (risk) is not a management technique, it is a survival skill. From working with the Australian Dept. of Defence, Victorian Infectious Diseases Labs, Serco, and Motorola, this book presents a proven set of strategies and practices that can take you to the next level.

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"e;Mastering 21st century Enterprise Risk Management"e; is an Executive's Guide for transforming ERM from an overhead to a value-adding driver of growth. It combines the best of ISO 31000 and COSO ERM to deliver bottom-line returns. By linking risk to strategy using Scenario Analysis, Bayesian modeling, and aggregating their effect, it allows organizations to fulfil the primary directive of ISO 31000 - managing the uncertainty in strategic objectives. In the post COVID business environment, managing uncertainty (risk) is not a management technique, it is a survival skill. From working with the Australian Dept. of Defence, Victorian Infectious Diseases Labs, Serco, and Motorola, this book presents a proven set of strategies and practices that can take you to the next level. This book aims to set the foundation that will allow organizations to implement the Future of ERM - AI-based Risk Management. Putting in place Good Governance, Ethics, Strategic Management, and Risk based Auditing, are all necessary perquisites to tackle the two-edged sword that is AI based Risk Management. Understanding the principles of Bayesian statistics, causal mapping, and threat management, puts Executives in the driver's seat. It also sets a solid platform to manage volatility and exploit the vast potential inherent in the full range of artificial intelligence and disruptive technologies available today.

Textauszug

Chapter 1Firing Failed Risk Practices

1.1Brexit and the failure of ERM

There has been much written on the over-emphasis of “Black Swans”1 in risk management. The 2016 Brexit vote not only sent shock waves through financial markets but also created a completely new paradigm to world economic stability both short and long term. If risk is defined as uncertainty, then today this must be one of our greatest risks.

Figure 1-1

So what happened with Brexit? After all, the vote was a 50/50 risk! I believe it was an enormous accident. No one really thought it would happen. Just look at the graphic above to see the odds bookies were offering of the U.K. staying in the EU! Over 2 to 1. Even I bought shares that Thursday, discounting the vote as a non-event. From the petitions still circulating in the U.K., I would say complacency amongst the media, middle classes, and business community was the major culprit.

The same complacency with “nutter” politics voted in Donald Trump (as shown by his absurd “congratulation on taking your country back” comment on landing in SCOTLAND, which voted No!).

So where to from here?

My “guess” is that the U.K.’s exit from the EU (now exacerbated by COVID) will result in a Thatcherite period of recession, social unrest, and economic restructuring. I believe this, like its namesake, will leave U.K. stronger. Ireland will boom as the new English-speaking base for European access, and the EU will devolve back to its roots, plus maybe the Czech Republic. This is not because of any political bias, but purely economic rationalism. Proven both in business and the USSR, management of large dispersed operations (like the EU) must be delegated and decentralised. This is why small “start-ups” outperform large market leaders, and why the short-lived “Intrapreneurship” fad failed.

The trap of the Risk Matrix and Heat Maps

The first requirement for resilience is awareness. Awareness of how different aspects affect your processes and objectives is a foundation of risk management. Like a 1980s entrepreneur, the EU has been fixated on expansion (a historical trait for Germany) at all costs. Most of these 1980s entrepreneur companies ended up unravelling, but some restructured back to core business and survived. I see this as the only way of survival for the EU and ERM.

Sadly, ERM’s over-concentration on risk heat-maps and dashboards that have created a false sense of security. They distract from the effort needed to develop interactive risk models that allow senior management to understand and manage disruption. Just as the EU has been hijacked from its original “economic” purpose, so I see ERM being hijacked from its original intent to strengthen organisational resilience.

The fixation with Emerging Risks

Whether my “guesses” about the future are right or wrong, ERM is a navigation tool, not a crystal ball. Invariably, our biggest disruptions are sudden, momentous, and for which we are not prepared.

Instead of occupying our time and effort with trying to predict the future, risk management functions would do better building business resilience to handle major disruptive events. It should empower you to identify the best course when there is an unexpected change in your business environment and highlight any likely threats or obstacles. Yes, keep one eye on the horizon but make sure your navigation system is operational.

Brexit also raises several issues for modern risk management. First, is your effort in identifying emerging risk really cost justifiable? Second, how does it add to your resilience? Finally, can your ERM tell you where you stand now, AFTER the event has occurred? If you cannot answer these three questions, then your ERM is a failure.

1.2Past Failures

What do I mean by “failed”? By “failed”, I mean that risk management has failed to deliver the promised benefits. Outside the governance, risk, and compliance (GRC) fraternity, most senior executives will agree that risk management is, at best, an evil necessity, and at worst, a bureaucratic waste of time. But most likely, that it is just another failed management fad.

In the same way that a weed is a plant in the wrong place, a management fad is a strategy poorly implemented. Unfortunately, in risk management many of those working in the field are debating the furnishing fabrics while the house is burning, or believe they can fix it if people work harder. I believe we need to reassess how we do risk management.

Although in recent years there have been a plethora of case studies on large-scale business failures, I have used Ford and QANTAS as they are companies that were heralded as benchmark examples of Risk Management practices.

Ford Australia’s closure

Ford was an iconic brand in Australia for nearly 100 years. Supporter rivalry of Ford vs. General Motors was the stuff of legends; the automotive equivalent to Liverpool vs. Manchester United fans. No other product could dream of this level of consumer advocacy.

In the 1970s, Ford produced the ultimate “muscle car” still talked about today, and its luxury models limos for visiting heads of state.

Ford Motor Company management claimed it was no longer economical to manufacture in Australia due to the high labour costs. However, German manufacturers BMW, Mercedes, Audi and Volkswagen somehow seem to manufacture with higher labour costs, environmental controls, and taxes. So maybe there is something else going on at Ford.

Writing about Ford’s decision in “The Australian” newspaper, Maurice Newman argued government needed to “work urgently to restore our international competitiveness.” He wrote, “… why invest billions in modernising? The decision to shut down in October 2016 was the only rational one.”

I lay the fault at Ford management’s feet. The purpose of management is to cater to the push and pull of the business environment, and not just to survive, but to grow.

When management sleeps on the job

Of course, Ford did not jump straight from dominance to closing up shop. Ford “slipped” from selling 84,000 vehicles in Australia in 2003 to only 14,000 in 2012. I think free-fall is a more apt description. An 83 percent drop in sales?

Had Ford management been asleep for 10 years? There is a dire lesson in this for anyone in business. Look at Ford worldwide. Ford Focus was one of the top selling cars in Europe, while the Ford F150 was one of the biggest selling pickups in the U.S.. On top of this, Ford had a well-publicised ERM framework. Since 4-cylinder compacts and SUVs account for 80% of the Australian market, how could Ford Australia had an 83% drop in sales and become “no longer economical”?

Death by 1,000 cuts

Ford is stuck in the 1980s. Marketing out-of-date and mediocre. Customer service was laissez faire at best. Last year, while looking for a new car, I went to Ford to test drive the latest Mustang (yes, showing my age). Not only did I have to return the next day as the boss was out to lunch (what difference did that make?), but I did not even get a sales call-back for 3 weeks. By that time, I had bought an Audi.

But I digress. Where were Ford’s executives during the company’s free-fall? Should they have not acted before it got to that point? They had 10 years. That is the key. Ford suffered death by 1,000 cuts. Too many managers accepted poor results as being out of their control. They kept using last year’s results to budget for next year, which only breeds decreasing performance. Those approaches, along with cost cutting to shore up the dwindling bottom line, may feed executive short-term bonuses but locks in long-term failure.

Simple good governance comprises proactive risk management plans with mitigation strategies, not charts. Proactive risk management is about planning for the future, not reporting the past.

You need to tie customer feedback, like risk, back to hard corporate objectives, not soft feel-good values. Product development must be oriented toward advancing customer expectations, not cost cutting. In the 2020s, customers expect innovation and to be wowed. Apple and Tesla have proven this paradigm.

Marketing is for developing the market, not merely beating last year’s results. In addition, if you accept reputation is a key factor in customer decision-making, then developing the corporate image must be a key aspect of a company’s marketing strategy. A key element of reputation comes from good governance. Good governance is no longer a luxury enjoyed by large profitable companies, but a survival skill for all businesses.

The greatest threat to your business is mediocrity. You can easily identify “mediocre management” by their contempt for compliance and risk management. They prefer frenetic activity (aka firefighting) than prevention and planning.

I do not believe anyone would question that we are living in a changing world. That requires management to not only to keep up with changes but to anticipate it and gain the requisite skills to be ready. Coming from an IT background, where technology completely reinvents itself every 5 years, I learnt to be continually retraining, exploring new opportunities, and...

Produkt-Details

• Erscheint lt. Verlag: 11.5.2021
• Sprache: englisch
• Themenwelt: Wirtschaft ► Betriebswirtschaft / Management
• ISBN-10: 1-0983-7272-7 / 1098372727
• ISBN-13: 978-1-0983-7272-9 / 9781098372729