Elephant of ERM

Like every year, this year too, the ERM meeting by Chief Risk Officer was not very interactive. The external consultants who were present at this year's meeting with their vibrant presentation even could not engage the senior managers present to contribute to 'to be' Enterprise wide Risk Management System (ERMS). The senior managers at the meeting didn't ask searching questions and they didn't debate but were just sitting passively watching the nicely made power point presentation. The meeting soon got over before the lunch hour and the managers left with no commitments whatsoever.

Two weeks later, when annual budget and operating plan for the next year was on the table of CEO; inherent conflicts of interests were visible. All the line managers had strongly presented their cases for granting excess budgets for their activities. They had confirming information for their decisions which they had already committed of making. All had justified their future action plans without any sort of critical evaluation in light of any disconfirming information.

The Production Head wanted to have full capacity utilization with stable production schedules for bringing major cost saving for the assembly unit whereas Sales Head was pressing for having wide range of products with different sizes so as to increase chances of making a sale. Unlike others, CFO had envisaged lower economic growth ahead and was worried about inventory built-up and additional cash outflow on account of discounts and promotional activities. Many managers have tendency to be over optimistic or unnecessarily pessimistic when their incentives are linked to their specific functional achievements and thus they tend to discount the information that might lead to conclude that their plans were biased and not in synchronization with other functions.

Something was definitely missing. A moaning Risk Management System which critically validates assumptions. If you want to reduce risk in your business, you have to seek both confirming and non-confirming information before you take action. This helps the firm to make intelligent trade-offs based on reality. But most of the time the problem is lack of platform that encourages open debating of the assumptions made by the managers and their by challenging of each assumption by cross functional leaders at granular level with penetrating questions.

Is Chief Risk Officer responsible for seeking disconfirming information or decision makers themselves are to seek such information compulsorily while making any decisions as a process? Who will conduct a meeting for challenging their own assumptions openly? Who will make correct trade-offs? Who will see the entire Elephant of Enterprise wide Risks? Audit Committee!!! I don't think so. Debating in group will only construct and share a comprehensive picture of enterprise wide risks. Only open and guided discussions will encourage commitment to execute with accountability and develop respect for each other.

Yes. Respect and unity within a business team are the missing elements. No one can claim, not even any sort of Committee, of having a vision of the entire Elephant of Enterprise wide Risks. Yes. ERMS too needs integration with the entire body/soul of knowledge system, the biggest of elephant ever known to business kinds.