Mindsets, Decisions & Actions
Almost without exception risk registers reflect the potential impact and probability of occurrence of risk events external to the organization; for example the potential impact on enterprise (organizational) performance of a supply chain failure whether goods or services or the impact of increased cost of finance, whatever the cause. Very rare indeed is it for risks consequential to current organizational philosophy-mindset (e.g. we’ve been in the business a long time – we know what we are doing) or governance-management decisions and actions (e.g. cuts to capital and maintenance budgets, freezing of wages and salaries, sinking-lid and no replacement staff employment policies, slashing training budgets, etc.), to find their way onto the enterprise (organizational) risk register, let alone the risk dashboard.
My context here is overall Enterprise (Organizational) Performance Risk Management, not siloed subsets of risk such as financial risk, health & safety risk, operational risk, credit risk, supply chain risk, project risk, etc; the impact of today’s mindsets, decisions and actions upon future organizational performance, however it is measured – in terms of profit, return on investment, program cost or outcomes delivered.
Before rambling on, a quote from G. K. Chesterton who over a century ago with great insight wrote:
The real trouble with this world of ours is not that it is an unreasonable world, or even that it is a reasonable one. The commonest kind of trouble is that it is nearly reasonable, but not quite. Life is not an illogicality; yet it is a trap for logicians. It looks just a little more mathematical than it is; its exactitude is obvious, but its inexactitude is hidden; its wildness lies in wait.
What is hidden by the presumptions that mindset often engenders or the unknown consequences of today’s management decisions and actions?
What lies in wait with a metaphorical bite?
There is more going on here than meets the eye…
Liquidity is King
In a recent survey of the world’s largest banks the top five lessons learned were:
- Liquidity is king (90%);
- Institutionalise a risk culture (73%);
- Stay attuned to industry dynamics (60%);
- Don’t forget the people factor (40%);
- Prepare for the unexpected (35%).
An overwhelming majority (90%) cited an over-reliance on short-term funding, that growth was “king” and that liquidity was just not factored into the equation. Nearly three quarters (73%) of respondents considered it essential to institutionalise a risk culture… that goes beyond a narrow compliance focus. And over half (60%) of the respondents expressed the view that their organisation had been lulled into complacency by the benign market environment and the flow of new product offerings. A view expressed by a significant number (40%) of respondents was their underestimation of the importance of the human factor in managing risk, that human judgement, insight and experience should be more highly valued and utilised. And finally, 35% expressed the view that the banking industry as a whole had adopted a reactive, compliance-driven approach, rather than a forward-looking stance to risk management. Read the rest of this entry »