Realities of Smart Risk Management

by Francis X. Ryan, CPA
Pursuit, October 2007

Planning that prevents failure is also likely to preclude
success. You cannot possibly win if you are not willing to fail!

Some people are comfortable taking risks, others are not. In fact, some people take risks without even realizing it. For instance, many people believe that doing nothing means they are not taking any risk, when in fact, this may be the riskiest strategy of all. Risk, and your comfort level with it, will have a material effect on your life, your success, and your company’s future.

Most corporations take risks every day. The question is: How well is the risk managed? Is it taken rationally, and are the inherent risks and consequences well-understood?

Corporate governance is all about identifying, assessing, taking, and managing risk. A smart approach to managing risk is an enterprise risk management (ERM) program. I suggest a Treadway Commission and COSO standards approach to ERM. This framework allows for a consistent analysis and understanding of the risks taken and potential consequences of those risks.

The COSO Web site states, “Internal control is a process, effected by an entity’s board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following categories:

• Effectiveness and efficiency of operations
• Reliability of financial reporting
• Compliance with applicable laws and regulations

Risk management is much more than a system of internal controls. In evaluating risks, companies should weigh them against operational efficiency, as well as organizational objectives. A conceptually sound framework allows for the intelligent calculation, analysis, and understanding of risk so it can be used as a tool for success rather than something to be avoided.

Seize risk and win. Ignore risk and lose. The choice is yours to make!