Governance–Risk–Compliance: accept responsibility to reap the rewards!

We know we can’t make reliable predictions about our environment..but it doesn’t stop us from spending enormous amounts of money to do so. Then to pay for the consequences of getting it wrong!

Introspection needs to get serious and, to do so, go beyond, “how can we improve our margins?” Apparently we don’t like to indulge in too much self-analysis, even though identifying and addressing “flaws” at source makes so much more sense. We can influence, manage or control what we do, why and how we do it. There is very little we can influence outwith our immediate environment. BusinessRisks

To put this into a business context and convey the message about how complex any business can become, consider the following table:

If this is insufficient to convince you that there are enough risks associated with behaviour to be getting on with please consider how many of these could be addressed by a robust Operational structure!

If you still have doubts, perhaps this extract, from a very interesting paper, will help. It was the result of a collaboration between US National Academies/National Research Council and the Federal Reserve Bank of New York on an initiative to “stimulate fresh thinking on systemic risk”.

Catastrophic changes in the overall state of a system can ultimately derive from how it is organized — from feedback mechanisms within it, and from linkages that are latent and often unrecognized

Put another way:

“In a complex system, learning how all the pieces—constant and variable—interact gives a depth of understanding that averts catastrophe. That is what we mean by human-centred design—understanding the interfaces among technology, people, communities, governments, and nature. This is what makes complexity manageable”

Of course a fire, flood, earthquake, etc. can devastate a business. That is why we spend money on risk protection (insurance). Right or wrong we rely upon them to “make things right”. But have you ever wondered why so many, apparently successful, firms fail to recover from a major loss?

Investing in a culture of loss prevention commits resources to building a resilient enterprise.

Perhaps viewing things in this manner may prompt you to think whether paying a premium to transfer risk to an insurer is the right option – some level of risk transfer is a must.

Focus less upon the price you pay and more upon where and how you can add VALUE to your business. You may wish to answer any doubts by asking about the operating expenses of your insurer and commission payments to your broker: this information may tell you all you need to know about who benefits most from the insurance protection you pay for; why “selling insurance” is preferred to providing risk advice and services; why transparency is such a threat; and compliance such a challenge!

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