THE RISK MANAGEMENT OF THINGS IN 2014

What the New Year 2014 has in store.

(This article was originally written by one Adrian Ladbury)

Risk managers will presumably be preparing presentations to their bosses and perhaps the board members about what they will focus on in 2014 to make sure their company is calamity free. Some will also be keeping one eye on their prospects for promotion in 2014.

Making firm predictions about the year ahead may not come naturally to most as risk managers aren’t really designed to make bold forecasts without endless caveats. So we thought it might be useful to make some predictions for you based on evidence we have gleaned from interviews with risk managers and industry experts over the last 12 months, our monthly newspaper, Commercial Risk and International Programme News publications, European and Global Risk Frontiers surveys and, of course, discussion at our own (Malaysian industry) events and risk industry meetings worldwide.

So here we go, some big questions that you may find useful to consider as you draw up your personal and professional plan and set resolutions for the New Year.

1 — How do I get promoted to Chief Risk Officer (CRO) this year and earn loads more money?

Based on our research it seems inevitable that a number of our readers will be promoted to CRO this year. So how do you make sure that you are one of them? Firstly, you have to convince the board that they need a CRO if your company doesn’t already have one. To do this you need to show them that the function will add real value and improve the bottom line. To achieve this you will need to find a risk that manifested itself last year and show how a more holistic approach to risk management (carried out by you) would have prevented it from occurring. Preferably choose a big incident that cost the company a lot of money and/or reputation and make sure it’s a risk that you did not take the blame for failing to spot and manage. Explain that had you been CRO it would not have happened. Try not to too obviously stab someone else in the back in the process because they may stab you back in the future, so make sure you do your homework. The structural failing that led to the incident in question may well have been a direct result of one of your board member’s foolhardy decisions in the past. So be bold but tread carefully.

 

2 — How do I make sure that promotion to CRO means I do less work?

Whenever I got promoted in a huge publishing company I used to work for, everyone told me that it should mean I do less work because I can delegate more. This never seemed to work out and I winded up doing twice as much work every step up the corporate ladder. This was because I was rubbish at delegating. You need to learn how to delegate better. Find those risk champions that a number of CROs who took part in this year’s Global Risk Frontiers survey said are essential. Convince them that being a risk champion is a great career move, train them, set up a nice fancy and transparent risk reporting system and give them accountability and responsibility for their risks. Then remember to mention if things go horribly wrong that you did everything you could to empower them and cannot be blamed for their daft decisions!

3 — Do I really need to go back to school and gain a certification in risk management to help win promotion?

Not really but it wouldn’t do any harm. We know of plenty of former insurance and risk managers who have been promoted to CRO without any professional qualifications. So older risk and insurance managers who have worked their way up to their current position through hard graft and shop floor experience will hopefully not have to start from scratch. Some will argue of course that this is not fair and will degrade the certification. It is therefore crucial that the group of experts charged with devising and implementing the scheme carries out due diligence and makes informed decisions every step of the way.

4 — Should I hand over insurance management to someone else when I get the CRO job?

Tricky one this. It is a simple fact that board members do not really care about insurance until a big loss occurs and they will then moan that the indemnification takes too long and ask what on earth was all that premium investment for in the first place. So, from this perspective, it’s probably a good thing to rapidly ditch direct insurance management responsibilities once you get the big new job. But, and it’s a big but, think about what happens when some bright spark on the board actually asks: ‘What exactly does this bloke do for his RM240,000 a year salary?’. (Are you getting to this level by the way?) If you are comfortable with the CEO responding by saying ‘Well I think he identifies the risks we are running, runs lots of scenarios and committees and works out how to manage them,’ and are confident that he or she will not then quickly work out that is what they are supposed to be doing, then ditch the insurance. If you think that at least directing the negotiation of insurance ensures that you can prove that you do something tangible and are therefore more difficult to sack then stick with it.

5 — If I stick with the insurance role, what can I tell the boss it’s going to cost next year?

Well that is an easy one isn’t it? Clearly it will cost whatever the loss experience of the last five years and investment that you have made in loss prevention and risk management dictates. If, however, for some insane reason the cost of the coverage is based on factors that are totally unrelated to your actual exposure and experience such as insurers’ investor expectations, level of capacity in the reinsurance market, broker ‘service fees’ and cost of maintaining the Capital Adequacy Ratio (CAR), then you can probably expect a mild increase in prices. I know this is what we suggested last year and it just did not happen. But logic surely dictates that it will happen this year, doesn’t it?

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