Being Risk Management a relatively young discipline, is important to begin laying the suitable groundwork for a sustainable development of implemented tools and procedures, in a coherent framework between different company levels.

“Every” organizations do tasks regarding Risk Management, then: how to joint those tasks and how to start to improve?

By Eugenio Micheletti* for staffingamericalatina

Introduction:

We’ll try to summarize in this article, for the different areas of development of Risk Management function, the stages that the companies could achieve, in an increasing order of maturity and excellence.

Definition of areas to develope:

Corporate Governance: Risk management has to be embedded in company strategy, its´ principles and policies, just because it’ related to the sustainable way the company will achieve short, medium and long term goals.

In addition, it’s desirable that Senior Management has commitment with financial reports, signing Management Letters.   Risk appetite definition gives parameters to take on new projects, restricting available resources to higher profitable business that comply acceptable risk profile.   And risk philosophy comprehends a pool of criteria for decision making in case of contingencies the company tries to avoid, explaining with clear samples different situations that allows the functionaries to compare them with others by analogy.

Internal control system:  this system has to include not only financial information controls, but also those that support the healthy functioning and reach the goals of the organization.   Many companies implement controls regardless an organic system of internal control design, including main processes, and attain that “to control” is not an expensive and bureaucratic function for the structure.     Ergo, possibilities to enhance internal control are many, and required to work in team with different areas of the company.

Monitoring main risks:   the responsable of Risk Management has to support the Senir Management in detecting potencial risks, to assess the probability of occurrence and the impact in EBITDA, to develop and monitor an action plan to avoid those losses.   This has to be an iterative, methodic and periodic process.

Maturity and gap to improvements:   studying and assessing the processes of sector companies, is possible to define different levels of maturity regarding best practices.   To improve is important to recognize which is the company situation, and understand how better it could operate, analyzing cost and benefits of implementing those necessary changes.   From this assessment on, we design action plans to reach higher levels of execution of processes.

General Map of Risk Management – Maturity grid

Accordingly, if a Company do a self-assessment could deduct easily where it is in the maturity grid regarding risk management, and which it need to advance to a superior situation.

Feedback and improvements

It is essential to strengthen the concept of continuous improvements in each fase, taking into account dynamic of business, norms changes, new tools, and the need of companies to be profitable in the long term.

Each of the concepts summarized in this article and included in the Map above, need to be reviewed and enhanced periodically.    This means for example, that a company that has implemented controls in some processes and want to test results of those controls, doesn´t has to check over those control implemented and others important to implement.

Actions to develop Risk Management tools should be focused to maximize what companies do, taking new challenges towards excellence.

*Eugenio Micheletti is Director of Emerging Staffing Brokers

emicheletti@emergingsb.com