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Crisis, what crisis? Turn your Risk Steering Group into a rapid response team - By Val Jonas, CEO, Risk Decisions Group
We have recently seen crises of truly global proportions unfold – financial sector meltdown, Japanese earthquake, and the BP oil spill disaster immediately come to mind – reminding us that risk is endemic and invariably thrust upon us when we least expect it.
With this recognition, risk management is back in fashion. It is important for companies to have visibility of risks so that they can be measured, monitored and controlled. However, there is another component of the discipline – the ability to respond rapidly to a crisis when it does happen.
Risk Steering Group
Organisations should establish a Risk Steering Group, comprising representatives from across the company that proactively drives enterprise risk management (ERM). Members of this group should also be seen as key players when it comes to dealing with a crisis. Collectively, this team oversees risk for the entire organisation, which places it in the best position to understand and address the composite risks and underlying assumptions that can lead to a major crisis, which would otherwise go unheeded when managed tactically at a lower level.
The BP oil spill is a case in point. According to the US presidential commission report into failures at the Deepwater Horizon rig, “BP, Halliburton and Transocean, the three key companies involved with the Macondo well, made individual decisions that increased risks of a blow-out, but saved significant time or money”. The report goes on to say that better oversight by managers “would almost certainly have prevented the blow-out.”
However, for Risk Steering Groups to work effectively, requires cultural change and an adjustment in mindset within organisations, from board level downwards. Figure 1 is an illustration of the role and position of the Risk Steering Group.
Driven by the business risk manager, the Risk Steering Group is typically made up of divisional heads, functional leads (human resources, finance, IT, business development, R&D etc.), programme/contract managers and other relevant operational heads.
The right risk management platform
In addition to establishing the Risk Steering Group, organisations must have sound risk reporting mechanisms; an infrastructure that supports timely identification, communication and escalation of key risks; as well as the ability to learn lessons to avert future disasters.
An analysis of the Deepwater Horizon catastrophe, reported by the Economist, highlighted the failure of BP to learn the lesson of a previous similar incident (at the Shell Bardolino field in the North Sea in 2009). Although this incident was brought to BP’s attention by Transocean, it was not communicated to the Deepwater Horizon team. In the Bardolino case, a fatal blow-out was prevented, but all of the same causal factors existed.
Sadly, most large global, complex organisations typically manage risk in a disjointed way. Systems currently in use tend to offer poor visibility of risks, no audit trail or lessons learned capability and are generally operated by single individuals who have little influence at management level. Some organisations still use spreadsheets to gather risk information; in such cases it is not surprising that risk is managed as a tactical exercise.
Enterprise risk software implemented throughout the organisation provides a platform for proactive and methodical identification of risks, evaluation and analysis of those risks, and structured reporting and auditing, which supports strategic planning and management. This is an essential tool for the Risk Steering Group.
The rapid response team
An effective Risk Steering Group can significantly reduce both reputational and financial loss. Its value lies not only in being able to proactively identify and manage business risks, but also, when the risk occurs, in becoming the rapid response team that manages the crisis.
For a Risk Steering Group to be effective, a number of things must be in place:
- An operational framework for major eventualities, including agreement on who the spokespeople will be in the event of a crisis, which audiences will need to be communicated with first, who holds the purse strings for unforeseen costs.
- The team must be experienced in formulating risk responses, weighing up options, making decisions as a group and presenting a professional approach, despite the pressure.
- The ability to access enterprise-wide risk information in a timely fashion, as a basis for sound decision making.
- Have the authority to act, as well as a direct line of communication to the Executive Board, to ensure swift and coherent decision making.
However, above all, the team must “gel”. The most effective task forces and Risk Steering Groups are those where the members are used to working with one another, know their respective strengths, and critically have each other’s trust.
This column was orisinally published in the September 2011 issue of Risk Management Professional Magazine
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