Magazine article Risk Management

Erm in the Red Zone

Magazine article Risk Management

Erm in the Red Zone

Article excerpt

Lessons from the Super Bowl XLVI Risk Management Committee

Risk management is nothing new to major sporting events. The success of a high-profile event such as the Super Bowl often depends more on what doesn't go wrong rather than what goes right. The organizers of the 2012 Super Bowl were certainly not the first to think through the risks - from bad weather to traffic to accidents to criminal acts.

What did seem to be new in 2012, however, was the way in which enterprise risk management (ERM) principles were applied to identifying and mitigating the risks. In fact, the Host Committee was told that Indianapolis was the first host city to apply ERM tools and principles on such a broad scale.

The success of this approach could be seen in the high praise the event drew from fans, sportswriters and National Football League (NFL) officials alike. As Pro Football Weekly publisher Hub Arkush summed it up shortly afterward; "'Super/ in fact, is the best way to describe Indianapolis' effort... There is very little I can imagine that could have been done better."

While a Super Bowl presents many unique risks, the Hose Committee also recognized that the event is similar in many respects to any other large, elaborate undertaking. It is managed through a highly complex structure that involves not only the Host Committee and staff but also thousands of volunteers, all of whom are charged with a specific area of responsibility. This means there are literally thousands of opportunities for someone to fail to see die big picture. Such an environment demands the enterprisewide recognition, assessment and mitigation of risk that only ERM can provide.

Consider, for example, whar would have happened if a major power outage had struck downtown Indianapolis February 5, just before kickorT. Virtually every aspect of the event would have been affected, so each division, committee and subcommittee needed to have a response plan ready.

Inevitably, though, each of these dozens of disconnected contingency plans would affect other plans, and some would almost certainly conflict. ERM provided a way to cut across these divisions, coordinate the contingency planning and build enterprisewide mitigation plans that addressed and balanced all of the widely divergent effects.

Event Risk vs. Business Risk

Despite the similarities between the Super Bowl and any other large enterprise, there are also some significant differences that set "event risk" apart from die "business risk" diat most ERM managers are accustomed to handling. The most fundamental of these differences is the way risk is measured and quantified.

In most businesses, success - and hence risk - is measured by the bottom line. For an event such as the Super Bowl, however, the financial outcome is secondary. Obviously, nobody wants the event to be a loss, and appropriate controls are essential. But nonfinancial risks, especially reputational risk, are the greater concern.

This distinction is important because nonfinancial risks cannot be shared or transferred as readily by purchasing insurance, one of the most widely used risk management strategies. In many cases, the only practical ways to manage nonfinancial risks are to avoid the risk in the first place or to accept the risk and prepare to respond.

That brings up another imporrant difference between event risk and business risk: the balance between prevention and preparation. Prevention certainly played a role in the Super Bowl's risk management, but many of rhe most material risks to a largescale event cannot readily be avoided, reduced or shared - which means preparation and contingency planning take on greater significance.

The other major difference between event risk and business risk is die changing nature of risk over time. There is a time-related component to most business risks too, but for an event that is scheduled for a specific day, die relationship of risk to time is especially strong. …

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