Sunday, October 23, 2011

About this blog... (aka. Why benchmark?)

The volatility of the recent years has rightfully called into question the effectiveness of current risk management processes. Investors, regulators, managers and the general public are all seeking greater accountability into both the positive and the negative impact of risk on organizational and societal future performance. The downstream impacts of the Japanese tsunami on the nuclear power industry, the Greek currency crisis, volatility of global financial markets and rise of China/India are all examples of issues that require nothing but the very best risk management decisions that we can possibly make.  Every year, we spend billions of dollars on risk management initiatives – most of that, without any subsequent assessment of the effectiveness of those risk treatments.
Figure 1: The reasons why we bother with Risk Performance Benchmarking
Managers and leaders at all levels are accordingly becoming increasingly accountable to their stakeholders for the delivery of key outcomes in the most effective and efficient manner and risk management is no different in this respect.  Being successful in terms of achieving objectives requires thoughtful and consistent optimization of resources and... an ongoing process of improvement.  Key Performance Indicators and performance scorecards are indispensable tools in this quest to establish, measure and achieve the best possible performance.

The recent economic downturn has provided numerous examples of poor risk management performance and the speed with which some major corporations met their demise has rocked the confidence of investors. In many cases, the public had little if any, warning prior to the collapse of these organizations. Only when the impact of management mistakes had crystallized on the balance sheet (and when it was far too late to do anything) did the full magnitude of the problems become clear.

The release of ISO31000 Risk Management Standard in 2009 heralded in a new era of potential standardization which among other things, can help organizations measure the quality of their risk management and to do ‘apples for apples’ comparison from year to year or across industry sectors.  The first step however is to build a risk management performance scorecard and unfortunately, ISO31000 standard is relatively silent on exactly how to do that.

This blog (the precursor to a book on the subject) addresses a number of methods, examples and guiding principles for developing effective KPIs and scorecards to support and optimize the management of risks. It builds on our 50 years of experience in building risk management performance in a range of industries. Between us (Julian Talbot and Miles Jakeman) we have built risk performance tools for resources companies in Africa, the aviation sector in Asia, the $30 billion Australian Department of Defence and a host of other organizations. The tips, tools and lessons from these experiences have been condensed into a single practical book on risk performance benchmarking.

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