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Risk Management and Cultural Change

Risk Management is widely accepted as a vital precondition for a successful business. There are national and international standards and even laws requiring risk management to be performed professionally. Results of risk management have to be included in the official reports of companies listed on stock markets.

Hence, one would assume that risk management is in the focus of the senior management and the board of every company. Actually, in studies performed regarding this subject, it has been found out that most effort spent on risk management is used for the improvement of risk processes and the technological infrastructure supporting this. That this might be the wrong focus is a lesson that e.g. the Swedish railroad had to learn rather painfully. They had built the usual risk management system with the quite common Excel reporting sheet – and felt that they were doing a good job in risk management. And quite reasonably so: Isn’t everybody else doing it this way? However, the harsh winter of 2010 taught them a painful lesson: At times, no train was rolling in whole Sweden. Risks cascaded and the situation got completely out of control.

The lessons learned for the Swedish railroad had been to incorporate all their employees actively in risk management, to train them accordingly and to comprehensively analyze risks and their impact on the company. The board is now actively shaping the companies risk management culture – by expressing its importance through highest management attention and actively listening to its employees.

Sadly, that insight often comes only after a severe crisis has struck a company, sometimes bringing it to the brink of bankruptcy. At least those companies will have a second chance. Those that don’t survive the crisis won’t.

So, please be aware that good processes and tools will avail you nothing if your employees don’t have the right skills and mindset for risk management. And it is the job of the board and senior management to be a role model for the importance of risk management.

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