03 Sep Risk Management is a Team Sport

One of the biggest challenges I have is how to keep a prospective client?s eyes from glazing over when the phrase ?Risk Management? is mentioned.? It?s almost like those two words are part of a magical incantation which puts many in upper management into trance-like states.? It confounds me. There is something utterly unglamorous about it I suspect.? It?s not exciting, flashy, or as sexy as landing a big deal.

Many can?t seem to visualize how it would play out in their organization.? Case in point, I was having breakfast this past week with the Controller of a company with gross revenues of $60,000,000.? They have been a client for several years.? Though the Controller has always been open to risk management, one of the majority owners has been less receptive and held me at arm?s length in certain areas.? His peers describe him as a maverick ?shoot from the hip? kind of entrepreneur.? You know the type.? Even with push-back, we have been able to drop over $400,000 in revenues to their bottom line in the last three years through basic?risk management techniques.? However, this owner has deliberately kept me out of areas he deemed ?his domain?.? Fair enough. One of those areas was product development / procurement.

As I was looking over their financials during the breakfast, I noticed what appeared to be an anomaly under the ?Legal Expense? line item.? ?This number looks bigger than last year?by a lot. Am I missing something??? The Controller proceeded to tell me they were in the midst of significant legal battles w/ two outside entities over possible patent infringement and intellectual property issues.? I asked how much has the conflict cost.? ?$500,000 in legal fees alone and we are not even close to resolution.??Please note these are direct costs and do not even take into account indirect costs in loss of opportunity and productivity.

When I met with this client several years ago and suggested performing an enterprise-wide?risk assessment, it was welcomed though with some skepticism but excluded the area of product development.? I pleaded my case about the pitfalls of carving out areas to no avail.? The result is an erosion of profitability.

The lessons learned?

1. It takes a team.?Surround yourself with people containing skill sets that will aid the organization?s mission to be fruitful, socially responsible, and to drive profitability. Play to your skills and bring people in that excel in their areas of expertise
2. Tie dollars to risk management.?If you can?t quantify numbers that drop to the bottom line as a result of risk management, you?re dead. Game over. Risk management professionals must find a way to make it compelling to C-Level personnel.? Money talks but evaporating profitability squeals like a schoolgirl.
3. Make the most of ?teachable moments?.? Losses as described above are avoidable or at the least able to be mitigated with proper due diligence.? A small investment on the front side to save $500,000 (and counting) only makes good sense.? Use these third party stories to put meat on the skeleton of?risk management.

Do you think that the Owner would be open to sitting down to talk risk management now?? Oh, and one other lesson? Never say ?I told you so?.