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Smart Risk Management: A Guide to Identifying and Reducing Everyday Business Risks is designed for any decision maker who recognizes that too much effort in controlling risks hurts innovation and that not enough control is wasteful and expensive. Turn to this book to find the balance.
By describing a formal process for defining and handling risk, this book provides tools to manage risk at both the individual and corporate level. You'll find out how to take risks confidently, reduce their negative effects, increase opportunities for innovation, and prove that risk management is more than an insurance policy.
This valuable guide focuses on:
About the Author
Ron Rael, Leadership Coach, is an award-winning speaker and facilitator who uses advanced learning techniques to deliver measurable, bottom-line results. Ron's highly customized High Road training systems shape existing and emerging leaders. Based upon his accomplishments as a business executive, Ron helps companies turn their drive for success into real results of employee satisfaction, customer retention, and internal cooperation.
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Introduction
The Ultimate Risk Taker
Who would you say is the ultimate risk taker? Who is someone you know who takes the sorts of risks you
admire?
Keep this person in mind as you read the following story of the person I believe is the ultimate risk taker:
Walt Disney.
If you are not familiar with the story of how Disneyland was created, I will recap its history and tell you
about Walt Disney. In the 1940s and 1950s, Walt was a film producer in Southern California and usually
worked six days per week. On Sundays, he liked to take his two daughters to amusement parks around the
area. Although his daughters enjoyed the experience, Walt did not. He and the other parents would sit
around with nothing to do while their children were having fun. Most of these amusement parks were dirty,
poorly maintained, and sometimes even unsafe.
During this time period, Walt took his family on a tour of the Bavarian Alps and what he saw there really affected him. He fell in love with the castles, the clean cities, and the friendliness of the people. He felt inspired by the Tivoli Gardens in Copenhagen.
These two situations hung around in Walt's creative mind. Soon afterward, he came up with the concept
for Disneyland. Like many ultimate risk takers, not everyone immediately buys into their vision, and the
same was true for Walt Disney.
When Walt sought financing for his dream of Disneyland, bankers turned him down. He approached other investors who did the same. They asked him questions like: "Why would anybody want to pay lots of money to go to an upscale amusement park? Why would anybody want to travel miles into the orange fields of an out-of-the-way place called Anaheim?" (Anaheim today is nothing like it was in 1950 and probably would not be if it were not for Walt Disney.)
The visionary Walt was tenacious, like all ultimate risk takers, so he persisted toward fulfilling his dream. He was approached by ABC studios to create a children's television program. Walt agreed to develop one only if they would be willing to finance his concept of an amusement park.
What most people do not know is that Walt ran out of money before Disneyland was fully completed. Several sections were incomplete, Matterhorn Mountain among them. Walt wanted exotic trees all around the park, but ran out of funds before he could purchase them. So he used local trees marked with exotic names--no one noticed!
Disneyland opened as Walt had promised in 1955. Opening day was a fiasco because all kinds of things went wrong: rides broke down, they underestimated the amount of visitors, and they ran out of food.
If you look at Disneyland today, however, you can see that it exceeds even Walt's original vision. Disneyland was not "because of a mouse," as Walt was fond of saying; instead, it was due to his dream, his willingness to take a huge risk, and his tenacity.
We will examine risk in a different way than you are accustomed. Most of us CPAs and financial-types think of risk management in one of two ways: either as the concept of risk taking on an individual level or as buying insurance and making sure to have sufficient coverage if a disaster occurs. What you will discovertoday is that risk management is much more. We tend to focus on the small view. The goal is to take you on a journey so that you will understand what true risk management is all about.
This book provides you with 50 different tools to use and 6 specific steps to follow so that your organization or client does a better job of managing business risk. The biggest "Aha!" in understanding risk management comes when you embrace the fact that while one side of risk management involves protecting the company from the downside of risk, the other side involves being willing to take that risk.
"Oh no! Don't tell me we have to cover that--I hate taking risks!" is what you might be thinking by now.
Sorry! You are not really able to be innovative unless you do risk planning. In order to do a good job of leading an organization, you must look at risk taking and understand what risk taking means on three levels: the individual, the corporate, and the global. You will end up with an understanding of risk from a senior leader's point of view.
Exercise: What Is Your Risk IQ?
Instructions:
Complete this self-test to see if you are adequately managing the everyday risks that your firm faces. Place a checkmark next to the questions that you answer with a definite "Yes." Compare the total number of boxes you checked with the answer key at the end.
___ Am I able to sleep at night without worrying about risk in my organization?
___ Do I have a clear understanding of firm-wide risk, the organization's key areas of vulnerability,
and our ability to recover quickly?
___ Am I confident that an accountable executive is addressing each risk, large and small?
___ Is there a process or function within my organization that is responsible for assessing, measuring,
and monitoring risk?
___ Have we created a realistic balance between innovation and protection?
___ Do our cultural norms help us ensure that all costly risk is identified before we take it?
___ Does my organization have an operational system or process for evaluating risk?
___ Do I have complete assurance that financial and operational controls are being used as designed?
___ Does your organization have a thorough and appropriate system with timely reports that use
checks or balances on innovation, fraud prevention, and risks faced?
___ Do I have assurance that financial and other information is reported correctly?
___ Are our processes for risk assessment, management control, and governance being evaluated and
reviewed for both efficiency and effectiveness on an ongoing basis?
___ Is there an emphasis and supporting process within my organization for aiding productivity and
for improving operations?
___ Are my organization's stakeholders provided with reliable assurances that their investment is
protected by ethical and sustainable means?
___ If I were not part of the organization [firm's management or the board], would I be comfortable
with the assurances provided to me (as a stakeholder or investor)?
___ Do we have a specific written recovery plan in the event that we suffer from a major risk failure?
Answer Key
13-15 checked--Congratulations!
You have a high Risk IQ! Keep doing what you are doing and improve those areas you did not check off.
10-12 checked--Good job!
You are effectively managing your risk, but are still vulnerable in many areas. Get started on removing those
weaknesses today.
7-9 checked--Scammers love you!
You have so many areas of vulnerability that fixing these vulnerabilities will be like trying to empty a full
bathtub with a teaspoon. Get cracking!
0-6 checked--Sharpen your resume!
Your company will be out of business within two years. Ouch.
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