Typical Notions of Risk Management Are Obsolete; Pathfinder Tells How to Succeed in New Risk Paradigm

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Gone with the wind are the days when leaders thought of risk management only in terms of how much insurance coverage they needed. Today, we must acknowledge the growth of risks in five dimensions: strategy, operations, financial capital structure, human capital and brand.

Whether we are doing the right things poorly or the wrongs things well are questions we fail to ask anymore.

How are you reducing the risk of risk?

The answers to that question, being posed to executives in business and government by John P. Foster, MBA, Managing Member of Pathfinder Group, are keys to success in an ever-riskier operational environment in both the public and private sectors.

“How is your strategy explicitly leveraging clarity of purpose, internal processes and human resources to reduce and manage the risks your organization encounters now or will encounter?” asks Foster, whose firm is based in Tampa. “If the answer is ‘not very well’ or ‘I don’t know,’ your brand is in serious jeopardy.”

Foster says that gone with the wind are the days when leaders thought of risk management only in terms of how much insurance coverage they needed. He says that today, we must acknowledge the growth of risks in five dimensions: strategy, operations, financial capital structure, human capital and brand.

To quote Harvard Business School strategy experts Robert S. Kaplan and Dr. David P. Norton: “We must elevate the topic of risk management to a level of visibility more in alignment with the dynamic nature of the ever-changing marketplace.” Today, risk is defined as the universe of uncertainties that affect an organization.

While acknowledging that government is not a business, Foster says that the public sector shares many of the same risks in terms of a need for clear thinking in strategy and utilization of scarce resources for taxpayers at a time when budgets are shrinking and there is increased demand for greater accountability and transparency.

“When you add to these risks the challenges associated with unfunded pension liabilities and the loss of institutional knowledge through attrition, the need for recruitment and retention strategies becomes abundantly clear as an important component of risk management,” Foster declares.

So what are leaders doing to address these areas? How are they questioning their answers to challenge the status quo? Chip Webster, former Florida Vistage Chairman, said, “If you aren’t green and growing, you are ripe and rotting.” That was his way of illustrating the importance of committing to continuous personal and organizational learning and growth.

Foster recommends leaders start with an assessment of their current situation as a means for better understanding their organization’s risk profile and risk awareness levels beyond the traditional insurance areas. Distractions from growth, daily routines, crisis management and generally being “in” the business or agency cause drift. In the press of these distractions, “why we exist” may no longer be as clear. “Whether we are doing the right things poorly or the wrongs things well are questions we fail to ask anymore. These represent real and immediate opportunities for your organization,” Foster advises.

Leaders and managers within any organization making an effort to manage risk might consider adding PESTEL to their tool box. Traditionally used to analyze trends in new or emerging markets, PESTEL represents six dimensions of the macro environment in which organizations operate. Those dimensions include the: Political, Economic, Social, Technological, Environmental and Legal. This disciplined approach of using an old tool in a new way provides an excellent framework for identifying a wide range of external risks and opportunities with potentially broad implications for your organization. Foster contends the application of PESTEL in this new way is consistent with the importance of elevating the visibility of risk beyond its insurance roots to a level at which it can be addressed strategically.

So what’s in your toolbox that you haven’t used in a while? How are you defining and dealing with the new paradigms of risk? What other old tools can help you in positioning your firm, business or government agency to withstand the risks coming at you at an ever increasing speed?

(John P. Foster, MBA, has built several successful businesses in the past 30 years, and today helps executives in business and government achieve their revenue and operational objectives by developing strategic solutions to more effectively managing risks. He can be reached at 813-716-2286 or at john(at)governmentconsultants(dot)com)

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