Enterprise Risk Management; Nick Leeson’s Lesson
What is Enterprise Risk Management?
Enterprise Risk Management is of immense importance in this current global environment where there are more uncertainties which portend great danger for organizations around the globe economically and otherwise. Operational risk events have made attention to risk management details at the enterprise level crucial for every business.
Many organizations have failed in the world because of poor enterprise risk management and one of the reference points to the impact of high-risk exposure can be learned from the case of Barings Bank and Nick Leeson.
Some of the key points to always bear in mind are:
- Effective risk management requires a clear line of demarcation between the back office (controls) and front office (operations). “Don’t ask the fox to count the chicken”.
- Adequate management control is important in ensuring that any organization is not unnecessarily exposed beyond her risk appetite. Don’t give too much autonomy to an individual, there is always a need for checks and balances.
- In order to minimize risk, a good reporting system must be put in place so that management can allow for a free flow of information on operational risk and this can help in formulating risk reporting systems in such organization.
- Organizational rules and regulations are not just signposts, all hands must be on deck to ensure that all employees are guided by them and there are monitoring tools in place to establish compliance regularly.
IMPLICATIONS FOR RISK MANAGEMENT PRACTICES
The following are recommended as good practices for organization enterprise risk management:
- Risk Insight and transparency: Maintaining up-to-date awareness of the organization’s exposure to the major risks is a good risk management practice that every organization needs.
- Risk Appetite and Strategy: Having a documented risk appetite and strategy ensures that the financial capacity of risks that an organization can take is established, and also the techniques and procedures required to address all risks at every level of the enterprise must be in place.
- Risk-related decisions and processes: Key focus of risk management in a corporate organization is to have every necessary tool to analyse and make decisions that pertain to risk (operating or strategic decisions)
- Risk organization and Governance: Every organization must put in place a governance structure that incorporates good risk management practices.
- Risk Culture: Organisation risk culture defines mindset, attitude or behavior towards risk-taking. As there are distinct differences between organizational functions and processes, so also are the difference in the approach to work and risk.
How to learn about Enterprise Risk Management
Management of Risk is one aspect of internal business control. The M_o_R course which is short for Management of Risk; is a Risk management approach that considers risk from different perspectives or views within an organization. This course is owned by AXELOS. These perspectives are usually tailored to meet the needs of different organizational levels i.e. strategic, programme, project and operational. Enrol for M_o_R (Enterprise Risk Management course)