Tuesday, November 12, 2013

What are the Major Barriers to Effective Risk Management

Every opportunity has risks; and every risk has opportunities.

The hyper-complexity of business environment and  advancement of technology bring both unprecedented opportunities and significant risks to organizations today, so how to mange them well and what are the major barriers to effective risk management?

Rigid adherence to a "pure" process, rather than molding ERM processes and techniques to suit the management problem at hand in a way that decision-makers can understand and apply. Viewing risk management as additional work instead of an integral part of management practices – this results in the “check-the-box” mentality and lack of ownership

The risk management process, language, and methodology may not be well suited to the 'culture' of the company; ERM is much more powerful if it is positioned as an extension of current management philosophy and techniques in the company, rather than an "off the shelf" solution; it should leverage in-depth business understanding in managing risk effectively. Otherwise, it may cause lacking problem solving focus – risk response plans focusing on addressing the symptoms rather than the root causes.

Absence of integration between the ERM process and the business planning processes - so much so that the two run as parallel exercises. Very few organizations manage to incorporate the ERM output into their business plans and standard operating procedures. Also lack of integration between project and business risk management - thus creating the silo effect, losing the benefit of cross-sharing and cost-saving, impeding strategy alignment 

Not moving up Risk Management Maturity from Risk Mitigation to Risk Intelligence:  Risk Management is the discipline of managing risks and opportunities and they may not allocate sufficient time to identify or progress opportunities whilst they are managing their risks. In the course of mitigating risks, organizations should also be considering opportunities to either grow their business or offset risk losses by adding new functionality to a product or develop a new version of a product to sell into an adjacent market. Organizations that think of only risks when they talk of Risk Management are potentially missing the benefit of growing their business with the wisdom of their risk knowledge.

Not well balance long term perspective and short term focus: Too preoccupied with those nitty-gritty risks whilst losing sight on the big picture risk. Cross-functional teams confused between Risk and Issue. More and more responsible shareholders are also realizing that the short term investment mentality or reckless management style is short-sighted and will eventually lead to disaster. They realize that meeting longer-term responsibilities will eventually yield the desired profit at steady speed.


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