The FSA defines risk culture as the following:
“a firm's risk culture encompasses the general awareness, attitude and behaviour of its employees to risk and the management of risk within the organisation”
Why is it important?
Embedding risk management in an organisation
Bringing about fully effective risk management, and embedding risk management into the minds, behaviours and activities of all staff, require a significant cultural change
What sort of risk culture should I be aiming for?
The following are typical characteristics of a strong risk culture:
positive and accepting – people consider risk naturally, without being told to do so;
open and transparent – everyone feels free to talk about risk honestly without creating a blame culture. This must however be supported by actions that don’t conflict with the policy otherwise people will perceive it as merely rhetoric;
acknowledging – risk is acknowledged as being part of everyone’s daily activities, strategic & business planning and projects;
risk closely linked to performance and development – risk forms part of departmental and personal objectives, performance development and appraisal processes; and is therefore reflected in reward structures;
awareness of expectations – everyone knows their responsibilities and their freedom to act in respect of risk.
Questions to consider before implementation
To what extent are all employees able to articulate the expectations of them and their scope of freedom to act with respect to risk?
To what extent does the high level sponsorship of risk management encourage the timely sharing of significant risk information?
Does the attitude and do the actions of management encourage the open and honest discussion of risk?
To what extent has the organisation developed consistent training, development, tools and techniques for risk management that are used throughout the business?
Are rewards structured in such a way as to encourage risk management activities as part of everyone’s job?
Are the benefits of risk management understood by all, so that people do risk management because they want to, rather than because they have to?
Section 12 Risk culture
Where do I start? Context-setting
What sort of organisation is it?
What are the main types of risk faced?
What magnitude are the most significant risks likely to be? Objectives
What are the objectives of the organisation? Make sure these are clearly agreed and articulated.
What are the objectives of risk management in the organisation? Are you doing it for the business benefit, as a result of regulatory requirements, or pressure from other stakeholders? Stakeholders
Who are the significant stakeholders? What are their needs?
What sort of relationship do you have with them? How do you want to manage those relationships? What’s already done?
Don’t re-invent the wheel. A large part of many peoples’ jobs is managing risks… but it is likely that it will be called something else.
Speak to people. Ask them what they do and why. Who’s going to do it?
Risk management is the responsibility of everyone, but the risk management co-ordination and support function is likely to be done by an individual (risk manager) or team (risk management department).
Where do you start? 3 vital stages:
convince yourself – make sure that you understand what you intend, test it locally;
convince supporters – e.g. consultation, participation, information, pilot more widely (some of these need to be within the senior management team); and
convince adversaries – look for gaps, overlaps, easy wins, long term projects and have a staged roll out. This is very difficult to embed (rather than impose) in one go in an organisation of any size.
Section 12 Risk culture
Tips for embedding and implementing risk culture High level sponsorship a “must”
Why?
it sets the tone across the organisation, and enables appropriate resource and importance to be given to risk management
to develop the positive and aware attitude to risk amongst senior managers, which then filters down
What do you need?
active support of the Managing Director / Chief Executive Officer risk champions amongst the senior management group
support for the embedding initiative from the senior management group What happens if you don’t have it?
lack of understanding and enthusiasm will be the norm threatened feeling as a department / practice
lack of buy-in at the top makes embedding impossible Practical tips on how to develop and maintain it:
clear, concise, and early individual briefings and consultation with directors and senior managers;
clear, strong, repeated messages using common terminology coming from the senior management team, particularly the Chief Executive Officer, are extremely powerful and work particularly well when combined with repeats of the messages later. To this end, the provision of suitable messages and sound bites for the Chief Executive Officer to use is an extremely effective tool;
explain the benefits to be gained from risk management;
emphasise the benefits that will appeal to them (better / easier decision making, more effective meetings, better measurement);
show them the benefits that others are enjoying, especially competitors;
build on what already exists. Enhancement and adaptation of what already exists is almost always more palatable and easier to buy in to than wholesale change. Be prepared to recommend such change if that is the right thing to do;
make appropriate staff accountable for risks, for controls, for action plans and link it to performance appraisal and reward; and
get risk management mentioned in the organisation business plan, and annual report and accounts as something the company supports and does.
Section 12 Risk culture
Involve all staff
promote an organisational culture that says everyone is a risk manager; explain how risk management helps:
deliver results; promote innovation;
improve resource allocation;
reduce failure or inability to cope with crises. People must be able to see “what’s in it for me?”
involve lots of people at all stages of the risk management cycle, including objective-setting, risk identification and risk and control self assessment;
risk must become part of day to day activities and core processes. Every project, business plan and workstream must include considerations of the risks involved and the risks they are
addressing;
risk management is not something that can be done effectively by the risk manager or risk management department in isolation. The risk manager should identify, harness and build on the expertise that exists within the organisation. There is a dual benefit to be utilised:
people in the organisation (rather than the risk manager) know the business best. They are therefore in the strongest position to have the appropriate answers, therefore benefiting risk management;
those people in the organisation therefore feel involved and have a better understanding of what risk management is and how it is part of their responsibility.
encourage people to manage their own risks, with risk managers acting as a support mechanism;
document and communicate risk management roles and responsibilities; include risk management in personal objectives;
develop risk-based recognition and reward initiatives; recruit on attitude as well as experience;
written code of ethics to reinforce values.
Training and awareness Key aims:
all relevant staff in the organisation understand the basic concepts and benefits of risk management;
all staff are aware of and understand the organisation’s approach to risk management; and all staff apply the organisation’s risk management principles in day to day operations. Failure to achieve these will result in people acting against the stated aims of the organisation, confusion, wasted effort and unnecessary conflicts. It is important that everyone is pointing in the same direction, and that the direction is the right direction.
Section 12 Risk culture
Practical tips on how to develop and maintain training and awareness:
include risk management objectives in department and personal objectives, appraisal, pay & rewards;
questionnaires can be used to assess level of awareness and understanding, and also act as an advertisement, raising the profile of risk management;
training is tailored to specific needs of departments, teams, individuals. Training must be ongoing, not just one-off. There is a need to keep training programs up to date with developments (and new recruits);
encourage, and create opportunities for, training and development;
reference sources (library, bulletins / newsletters, briefing notes, risk champions, etc.). Not only should some or all of these be in place, but everyone should know where to find it and who they can turn to for advice and support;
if appropriate, develop risk management pages on the local intranet;
encourage the use of role models as ambassadors for risk management and culture change; recognise that there is a wide range of perceptions about risk. Individual psychology, past experience, individual risk appetite, organisational roles and group dynamics influence peoples’ perceptions and decision-making with respect to risk;
user groups, and local experts or “risk champions” may be helpful; and develop a dedicated risk management helpline, as this may also be useful.
Communications
regular communications keep everyone informed of developments, but also serve as a gentle reminder, keeping risk management from slipping to the back of peoples’ minds;
encourage and facilitate meetings, seminars, workshops; ensure that risk is an integral part of Board agendas;
communicate expectations of individuals and departments with respect to risk; agree and publish a risk assessment and reporting timetable;
develop and communicate escalation procedures for risk issues;
commonly agreed and understood terminology and language should be published,
communicated, publicised and readily accessible. This facilitates clear communications and helps to minimise confusion and misunderstanding;
ensure constancy and consistency of approach, i.e. it is seen and experienced over and over again; and
a risk manager can help draft communications for other individuals and departments that include key messages on risk.