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  wk chan May 22, 2011 13:41

  Is a convergence challenge to integrate corporate strategy, governance and risk management since risk neglects strategy formulation. Risk management is the practice of identifying, evaluating and controlling those factors to avoid or mitigate potential negative effects, where such these perspectives can be challenged, in particular the idea of founding the concept of risk on meeting defined objectives. The concern is that such perspectives could easily lead to the wrong focus – meeting some more or less arbitrary objectives rather than finding the overall best solutions and measures from a value creation point of view. Henceforth, there is a need to distinguish strategic risk from operational risk eg the cause of operational losses of financial institutions during the financial crisis were originated from strategic failures.
  In order to connect strategic and operational risks, the framework of the management control system should be on an informational basis by taking strategic planning and control as a whole, and integrates diagnostic control and interactive control into the operating framework, where formulation and implementation of strategies or strategic change are explained under this framework, concurrently focusing on the roles of diagnostic control and interactive control. Such interface will improve organisational effectiveness and efficiency, particularly during strategy execution by discovering and correcting deviations and taking opportunities.
  Post-financial crisis have reinforced majority of companies to be risk averse when forming strategies but marketing and operations remained essential for competitive advantage. This suggests that different risk-assessment strategies are appropriate for different functions.
  So, in answering the question - Is not game changer but Game-Bridger.
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  Adrian Sparrow May 20, 2011 10:37

  Thanks Boris, that was an interesting and informative paper.

  I wonder where the balance lies in achieving successful management of risk - leaning towards techniques and automated tools or in favour of pyschology and culture...
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  Robert Arvanitis May 19, 2011 14:48

  Steven:

   

  I believe we are saying the same thing.

  First there are the external impositions like regulation.  Necessary but of quite limited value.

  Second there are the true economic risk metrics, for example predictive analytics to anticipate rising fraud or correlatives of default.

  Finally, and of greatest worth, those who study risk can add true value by spotting market developments, unmet needs, risk/return imbalances for the firm to exploit.
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  Marijana Curguz May 19, 2011 3:35

  This is very good article and guidance for risk professionals who are looking to be frame-makers, i.e. game changers, in particular that it is based on HBS case study.

   

  I agree that functional experts and analyst sometimes tend to overanalyze instead of influence.
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  Steven Minsky May 18, 2011 17:09

  Hello Robert, I'm not quite sure I agree (or perhaps am misunderstanding you).  The case study by HBS is taking a look at how functions like risk management, internal audit, and accountants can take a more business-value-added role in their organizations. 
  
  Box-checking, while a requirement for some support functions, shouldn't be the end goal for these support functions.  As you say, "someone has to watch the pressure gauges...but that's not how to score".  In order to "score" these support functions need to do more than just fulfill functional requirements; they need to be contributing to organizational goals.
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  Derek Peach May 18, 2011 17:08

  My personal experience is quite mixed and very much depends on the key decision makers within FO as well as within the support/control functions, where we reach a symbiotic equilibrium (which I have seen in only two of the nine trading organisations I have worked in) then I would for sure describe risk as a game changer but typically the role has been a score keeper and the fall guy when things go wrong. Risk should be the conscience and deal enhancer for the company but too many risk professionals fail to understand the duality of the role and what the right mix of the two is. You need strong beliefs and also good support to effectively play this role.
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  Robert Arvanitis May 18, 2011 16:59

  That's a bit like asking if a football player (US style) is on offense or defense.

   

  Someone has to watch the pressure gauges, warning lights and fuel levels, but that's not how to score.
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  Steven Minsky May 18, 2011 16:48

  For those who don't quite have the time to make it through the entire document, here's a brief summary of the paper's main points:
  http://hbswk.hbs.edu/item/6680.html
  
  One of the case studies reviews how one Chief Risk Director changed her organization's risk culture by educating decisions makers, developing a common language of risk, and getting risk management involved at the strategic level.  These are important steps for growing any risk management program.
  
  Each functional silo uses it's own language to discuss risk preventing collaboration between those silos.  This can lead to the duplication of tests and controls and allow some risks to fall through the cracks between silos. 
  
  A common language allows your organization to collectively discuss risk enterprise-wide and make better decisions where previously, within a single silo, there wasn't enough information to act.
  
  Getting support from the top I think was the key for the Saxon case discussed.  The Chief Risk Director engaged senior management with the strategic tie-in they were looking for, and with their support was able to really transform her risk management program.