A Rebirth of Risk Management

Article excerpt

Over the last ten years, U.S. business has undergone dramatic functional and financial changes. As a result, companies now are stronger and better able to compete in world markets. Achieving these results, however, has required them to get all aspects of their businesses operating at peak performance. Companies have broadened authority, eliminated low- or no-value activities and restructured traditional roles and responsibilities.

In this new era, many corporations are broadening the responsibilities of the risk manager. To meet these new requirements, risk managers are utilizing new technologies to optimize operations and integrating new products and services available for risk management such as managed care and litigation management programs.

Five major forces are influencing the role risk management will play in the business environment of tomorrow: 1) the integration of risk management into the corporate management process; 2) a shift in senior management's expectations of risk managers; 3) fundamental changes in the nature of work and how it is performed in contemporary businesses; 4) the impact of new technologies, which have facilitated greatly information access and use; and 5) the rapid development of a "New Economy."

As the next century approaches, these forces will propel risk management into a new position within companies. Although the effect of these forces and their impact on risk management will differ from organization to organization, these changes are likely to expand greatly the role of the risk manager.

INTEGRATION

The first major force is the greater integration of risk management into the corporate management process. Over the last several years, senior managers have learned that the principles of risk management can be broadly applied in their organizations. For example, risk management principles can be utilized in areas such as expanding operations into new markets and building new facilities.

Top executives at successful companies also realize that risk management programs are best developed and implemented before losses occur. These companies include loss prevention and loss response planning within the scope of risk management. On a broader level, senior management at many companies are including risk managers in cross-functional teams that develop products, provide consultation to manufacturing operations and review marketing distribution plans.

The role of risk management must also encompass financial risk assessment. When a company plans a merger or acquisition, the risk manager acts as a key member of the evaluation team. Since the impact of assumed uninsured losses and liabilities can make or break a deal, the risk manager must assess these issues during the due diligence phase. Many companies now have an increased sensitivity to the impact of these financial risks on their operations. As a result, these firms require risk managers to become increasingly involved in key financial transactions.

In many organizations, risk managers are assuming the important role of "crisis" manager. When a crisis strikes, these risk managers have the task of exerting leadership and coordinating both public and internal activities. Typically, the risk manager will help assemble a "crisis team" that applies various interdisciplinary skills to manage a successful outcome of the event. The risk manager's role in this process usually includes the development of a crisis contingency plan and its full-time execution. Whether the crisis is a fire or a failed product, the threat to the viability of a business is considerable, so decisive action is needed to mitigate loss.

REDEFINING RISK MANAGEMENT

The second major force operative in companies today is the redefinition of risk management and the expectations senior executives have for risk managers. Previously, the job description of "risk manager" was narrowly defined as the person who works with insurers and brokers to purchase insurance products. …