As senior executives look for additional ways to increase shareholder value, they’ve begun to take a different approach in establishing how shareholder value is linked to risk management.

Many of them are beginning to recognise that risk is not just confined to a variety of negative outcomes that should be avoided, but also includes identifying and exploiting opportunities.  This article illustrates how enterprise wide risk management has evolved over the last few years and emphasises how organisations can benefit from adopting it.

Risk on its own is not always a bad thing.  But misunderstood or poorly managed risk is not a good sign.  Many organisations are beginning to accept that risk creates opportunities which in turn create shareholder value.

One key question that senior management should be asking themselves is “how do we manage the organisation’s risks to create value for our shareholders?”

Enterprise wide risk management (EWRM) has become an essential part of doing business in the 21^st century.  It’s a structured process that seeks to align an organisation’s business strategies, human resources, processes, information technology and intellectual capital.  It aims to evaluate and manage the internal and external uncertainty that confronts an organisation as it creates shareholder value.

“Enterprise wide” simply means that it’s an integrated, holistic & forward looking approach.  Traditional “silo”, functional, divisional barriers are removed so that opportunities are identified and exploited and that key business risks are managed to help senior management optimise an organisation’s key resources and to maximise shareholder value.

Senior executives are faced with a range of new challenges in their quest to increase shareholder value.  Enterprise wide risk management must now extend beyond traditional boundaries.  Globalised markets, the internet and ecommerce, increasing customer demands and the pace of modern business are changing rapidly & senior management needs to constantly address new risks.

Organisations are able to use EWRM to gain competitive advantage.  By identifying risks across the entire organisation, senior executives are able to manage and prioritise risks and link them to creating shareholder value.

But many senior management remain unclear on how they can start to translate the EWRM concept into processes that will enable them to create and increase shareholder value.  EWRM may be great in theory.  But senior management will only see its true value when they use information about their risks as a catalyst to drive better business performance and enhance shareholder value.

EWRM provides organisations with a disciplined, structured approach to help achieve their key business objectives, return on investment & drive even greater shareholder value.  Visionary companies are now beginning to embrace enterprise risk management as a powerful business tool.

After the global financial crisis hit the developed economies of the world, many companies were hit by a storm of new conditions that rocked their organisations and their ill-equipped enterprise risk management structures.  Many large companies operated risk management in silos and none of them communicated to one another, causing problems when the economy and market place suddenly changed.

Even though the silos were working towards the same ends, often their risk management approaches were only focused on their own particular area and were not compatible with other departments. In the worst cases, these separate risk management approaches actually harmed other areas of the same company.

Due to the fragmented risk strategies that most companies use (and suffer from), the prominence and importance of the Chief Risk Officer (CRO) is rising. The relatively new CRO position is an executive position and combines all of the risk management power inside an organisation and unites it under an umbrella helps drive the company forward.  The Chief Risk Officer is a strategic position that helps the company avoid nasty surprises and works through challenges while adding value and supporting growth.

What many companies realised when the crisis hit is that they had only begun to start preparing for and analysing their risk portfolios. Many companies were simply blind to what lay ahead when the winds suddenly changed.  The CRO is increasingly becoming a key player because they can help refine a company’s objectives and push it in the right direction.  CROs have the authority to ask questions about what the organisation is doing and why – with support from the board.  So who is typically going to become a Chief Risk Officer?

Those hired for the role often are typically very experienced members of industry, with 20 years or more experience. They understand the company’s processes from supply chain management right through to production and sales.  Communication is also supremely important: the CRO’s experience in the industry also means they understand the board, senior management and the stakeholders and how they think, making it easy to get important points across in relevant language.

This part of the job is very important.  Of course part of the problem with risk management silos is that the people managing their own turf are great at crunching numbers and analysing, but poor at communicating with one another and coming to an agreement that satisfies the board.  A good Chief Risk Officer will stop companies floundering when it comes to a changing environment that a fragmented strategy can’t handle.

Companies need CROs to protect their valuable market share and to ensure that they survive the current downturn. When so many factors and variables are changing — almost on a daily basis — it makes sense to have someone to captain the ship and steer it through the storm.

Adopting an enterprise wide integrated approach to risk management has become all the rage in recent times.  Not only does it allow companies to align its risk management activities with corporate performance to reduce any risk exposure, it also provides an ideal platform to review and exploit opportunities. 

It is with this in mind, that it has quickly become a pre-requisite with many organisations.

This article discusses the importance of balancing an organisation’s risk appetite with implementing successful strategies.  It encourages senior management to ask themselves:  
*  What are the organisation’s mission and objectives?
*  How much risk they are willing to take to achieve them?
*  How much exposure are we currently exposed to?

Aligning an organisation’s business objectives with its risk appetite can be completed effectively by senior management following a series of steps in a logical, systematic manner.  These steps are discussed in more detail below.   

Outline the organisation’s strategies.  Senior management should focus on setting both short term and long term strategies that are congruent with key stakeholder requirements.  Defining and communicating precise, strategic goals will help management understand what the organisation is trying to achieve.  It also helps focus the team’s activities as a goal driven culture becomes embedded within the organisation.   

Define the organisation’s risk appetite.  Senior management should agree upon the levels of risk that are acceptable in their efforts to achieve their objectives.       

Identify the organisation’s key risks.  A key risk to the organisation exists when there is a significant threat that it will fail to achieve its strategic business objectives.  Just as important in recognising the presence of negative threats will be to identify opportunities to create additional value for the organisation’s owners.  This part of the process, when combined with identifying risk appetite, should give senior management a much better understanding of the risks they are willing to take.             

Re-assess the organisations’ risk appetite.  Risk management is a “living” process.  As such, senior management’s risk appetite may change as they become more familiar with the correlation between risk and reward.  Organisations should continue to reassess and modify their risk appetite as the market place changes and management gain a better understanding of risk.      

Carry out regular risk assessments.  As discussed, risk management is an iterative process.  But at the core of it is senior management’s ongoing evaluation of the significance (also called impact) and likelihood of each risk materialising.   

Document and review any residual risk exposure.  This part of the process identifies any significant exposure that the company is faced with.  Normally documented via a grid (or matrix) it allows senior management to quickly identify those risks that, if left unmanaged, may hamper the organisation’s ability to achieve its business objectives.

Being complacent with risk management is like playing Russian roulette in today’s changing world. Regulations change, markets collapse and finance is becoming harder to come by.  Though many companies are now scrambling just to survive, it didn’t have to end up that way.

Many companies ignored enterprise risk management (ERM) strategies and did not create a culture dealing with ERM before the global financial crisis. This meant they were hit hard when conditions rapidly changed.  Too many managers didn’t understand the risk profile their company faced — a mistake that led to bankruptcy or administration for scores of businesses. The reality is that for many managers, when times were good, risk management just wasn’t a priority.

On top of the indifference to ERM, many managers do not have the skills and have not created the right management structure to accurately assess their company’s risk portfolio.  This inability to judge and act on risk has had dire consequences: massive losses to shareholder value.  Some 10 percent of the Fortune 1000 lost a quarter of their value within a month. Operational and strategic failures led to the loss of billions of dollars across the world.

Analysis of the situation shows that strategic failure led to the sudden and irreversible loss of value for companies, something that didn’t need to happen. If companies had proper ERM systems in place, they could still be thriving, even in today’s turbulent times of changing conditions.  In fact, companies that foster a strong culture of ERM should never have to face the prospect of insolvency, even in the hardest of times.

Companies without ERM systems in place must start establishing them to protect their interests and the interests of their stockholders in future.  Governments already recommend certain points that should be covered in risk management: Australian and New Zealand standards in risk management suggest that the strategic, organisational and risk management contexts should all be considered in an ERM plan.

What companies need to do is define the risk management context. This involves setting the scope and boundaries of the risk assessment process, including the time frame and specific project or activity.

One big advantage of ERM is that it helps managers clean up the loose ends in a business. ERM helps identify parts of the business where low or indirect value creation may have otherwise gone unnoticed. With good ERM, managers can make informed decisions about how they can streamline, outsource or reassign resources to produce added value for their organisation.

Companies that do employ a solid ERM strategy will better understand their own business. They will be able to withstand changes in the market that would otherwise shock them. Having good ERM practices will ensure growth because management will be equipped to make the right decisions.

The best way for you to understand how business coaching works is to recognise the importance of coaching in sports.

Can you imagine recent football World Cup Winners, Spain; The New Zealand All Blacks rugby team; Muhammad Ali, Michael Jordan, Usain Bolt or Tiger Woods performing without a coach who pushed and guided them? 

Their coaches were instrumental in:
*  Ensuring that the team performs at optimum levels;
*  Devising specific strategies and plays to defeat opponents;
*  Ensuring team harmony and that everyone worked for the benefit of the team as a whole
*  Providing one on one support for each player by encouraging and counselling them, where necessary.

Business coaching is no different.  Many small-business owners often have specific experience only in a limited number of areas and lack the holistic vision and skills to grow their business as a whole.

Business coaching should therefore be seen as an investment, rather than an expense or an overhead. You should therefore evaluate your investment in business coaching in terms of return on investment (ROI). You should also remember that business coaching is a long-term investment that will only pay dividends over a period of time and your evaluation should be based accordingly.

But a word of caution.

A business coach is not a magic solution to your problems and you should not think that just by having one, your problems are going to vanish overnight.  You will have to work very hard to translate the input you will see from your coach into concrete action. You are the entrepreneur and the coach is merely a resource or conduit to make things happen.

Some of the areas in which business coaching works well:

Creating an environment for growth. One of the key requirements for managing change and growth is to put in place the proper organisation and create the kind of work environment that promotes teamwork and encourages people to work with one another. The challenge is to acquire and retain high-quality talent. This is not an easy job and involves a number of areas ranging from job evaluation and appraisal to designing the right compensation packages.

Designing and managing systems. Systems are critical to establishing a backbone and a framework for providing support for all employees. Business coaches will often have extensive exposure to a range of systems for different functions such as sales and marketing, governance and human resource management. The right systems have the effect of improving productivity and quality and the ultimate benefit is increased customer satisfaction.

As I have said above, business coaching is only a helping pair of hands and the responsibility for growing your business is yours; fairly and squarely. To make optimum use of your resources, consult with your business coach frequently and extensively.

Do not implement key decisions without fully understanding what to do and how to do it. The consequences of your action should form part of an integral part of any business coaching process.

Even before you start looking for a business coach, you need to know what to look for. There are many business coaches willing to offer their services. Therefore, being aware of what to expect from a business coach can help you identify the best one for you and ensure better results when you do decide to engage one.

A good business coach is essentially a successful business owner with recognised credentials.  They will be well versed with the nuances of running a business and therefore have the knowledge to share and guide you through your own experience.  

Your business coach will:

Guide you at every step:  They will analyse your business and suggest changes that will improve your business.  Rather than working merely like a consultant, a good business coach will involve themselves by understanding your primary business goals and they’ll suggest using proven to minimise any risk of you failing.

Hold you accountable:  Business, with all its freedom for its owner, can often induce procrastination or a strong belief that a business owner’s strategies will work best. This thinking is surely a recipe for disaster as the owner loses a holistic perspective and gets sucked into believing that nothing can go wrong.  Your business coach will come with a fresh perspective and hold you accountable for your actions; thus coaching and steering you to better performance and inducing a sense of doing things “the right way”.

Inspire and motivate:  Running the show alone can be emotionally challenging. You will need people with whom you can discuss your problems and recommend practical solutions.  Your business coach will listen to your concerns and inspire you to perform better.  They will motivate you when you lose confidence.  They will ensure that you stay focused.

Recommend practical solutions: There are many books on ‘how to run a business’.  But rarely do you find any that suggest practical solutions. With your business coach, you get a ‘talking book’ full of practical solutions for many facets of your business.

Streamline ineffective or inefficient processes:  Your business coach will dedicate themselves to streamline your business processes, define work priorities and devise ways to bring more efficiency and productivity to your business.

Identify Whether Your Business Coach Can Deliver

The simplest way around this is to ask for references.   Ask about their experience with the business coach you are considering.  Ask them whether they delivered what they promised.

Remember, no matter what a business coach promises to deliver, the deliverables should not stay as mere words on paper. They should translate into real success and profits.  Your business coach should be able to help you improve sales, induce better work management and devise ways to streamline your business to give you more time to focus on business development, customers and much more.

Procrastination is fatal for someone who wants to manage his time better and take control of his life.  Procrastination is akin to setting fire to your own home, cutting your favourite suit into shreds, and crashing your Porsche onto your neighbour’s hedge.  It is self-sabotage, plain and simple – so why do people do it?

Fear of Failure:  Some procrastinate because they are afraid to fail.  They are too afraid of not living up to their expectations or to other people’s expectations that they’d rather be called lazy than lacking. (more…)

Saying no is perhaps one of the hardest things to do.  Helping other people out is good and pleasing other people is nice, so yes is almost always our default answer.  It becomes even harder to say no when faced with confusing statements.  “Don’t you want to help your friend?”, “Don’t you want to invest some time in building
relationships?”

Saying yes, however, could be one of the most unproductive habits one could have.  When we commit to doing more than we can handle, we have less time to work on our priorities.  Saying yes can also damage your reputation and relationships with other people. (more…)

How’s your day going?

It’s easy to dream – but it’s hard to follow and achieve dreams.

Dreams, after all, are just goals without a timeline and a definite plan.  Thus, if you really want your dreams, convert them into SMART goals.  Being SMART transforms prayers into plans and hope into action.

Specific
Do you think men would have been able land on the moon if they did not deal with specifics like the amount of fuel needed, the distance to be travelled and the place where Apollo 11 would land? (more…)

Have you ever wondered how a coach can change your life or your career or your business? Well, from personal experience and re-enforced by some of my clients I know for sure that there are four ways a coach can transform your life.

Recognise your dreams

We have preconceived ideas and this has moulded our thought process. The thought process has evolved over a period of time and is based primarily on our experiences and the people we have come into contact with.

For many of us, a look into the future would not look very different from what it is today. There may be marginal differences but on the whole it would be almost similar to what life is today. Why do we think so? (more…)