WHERE WOULD THE EASTER BUNNY BE WITHOUT RISK MANAGEMENT?
In my previous blog I wrote about the psychological factors that led Brad Pitt to the terrible decision of appearing in the awful Chanel No.5 Christmas advert; arguing that risk management can be effectively executed with good decision making. In this blog, the Easter Bunny Egg Distribution (EBED) Company will illustrate the importance of fostering a risk aware and risk responsive culture, in which decision makers can manage risk.
Organizations must invest time, money and staff in training to develop risk awareness so that risk management is embedded in every decision that is made within the organization. Many organizations have failed to embed risk management into operations, instead they retain separate risk units which allows for the abandonment of responsibility for bad decisions from the decision maker when risk events occur. By abolishing separate risk units, organizations can infuse a culture of individual responsibility and can devolve decision making to suitably trained and risk aware individuals.
Within the EBED Company the method of chocolate egg distribution for Easter Bunnies would appear to be Ad-Hoc. Instead of delivering the eggs straight to their consumer, they prefer the thrill of the chase, and choose to hide their eggs across the rolling country-side of Britain. But this cunning distribution isn’t achieved by luck! No, kittens (fact for the day: a baby rabbit is known as a kitten) have to go through a gruelling amount of risk training. New kitten recruits to EBED have to be trained in camouflage, concealment and subterfuge, in order to allow them to take appropriate risks in the distribution of eggs.
Many organizations have Key Performance Indicators (KPIs) but few have Key Risk Indicators (KRIs). A KRI can be developed to demonstrate the value of proficient risk management by tracking financial or reputational gains and losses created as a result of poorly managed risks, missed opportunity and good or bad decisions. Individuals could have risk performance management attached to their bonus scheme, which may lead to the earlier escalation of risks. This would help an organization to manage risk in three ways; it would lead the organization to focus not just on risk but on opportunity, it would allow the prioritization of risk by revenue generation, and it would lead individuals to actively manage risk rather than simply tolerating risk. In doing so a culture of the proactive of risk and opportunity management would replace the culture of crisis management that pervades many organizations today.
But training alone is not enough to succeed as an Easter Bunny, for those that excel in the dark arts of egg camouflage, concealment and subterfuge may take their training too far, they may remove the fine foil paper and hide the eggs too well. This is where a Key Risk Indicator comes into play, because despite the illusion of an apparently random distribution of Easter eggs, EBED HQ still has a target of getting 95% of Easter eggs into their consumers hands, below this level the bunnies are taking too much risk, above this level too little. And finally EBED incentivises the bunnies; CEO EBED tempers his bunnies risk appetite by offering extra warren space for breeding to the best performing bunnies.
RISK BASED RECRUITMENT
Is it possible to train a person to act against their nature when it comes to risk? Will an organization ever be able to get a ‘naturally’ risk adverse person to start to take risks, and conversely will training about risk management ever encourage a natural risk taker to behave in a risk adverse way. Training young men (natural risk takers) to drive safely and then testing that safe driving skill does not prevent young men from then having the most accidents on Britain’s roads. Organizational culture; and a recruitment policy that matches the risk taking appetite of new staff to that culture is an essential element of good organizational risk management. Individuals hold mental mind maps known as schema, these are rules designed to make sense of the environment and lead people to make decisions on perceived outcomes. Thus schema will have an influence on risk appetite in that they provide an innate frame of reference to deal with the unexpected driving people away from process driven long winded decision making to making judgment based decisions. Recruitment should be based on an individual’s risk appetite, their judgment and their values to facilitate an appropriate risk culture.
So let’s imagine for one second, that one year Easter Bunny Myxomatosis leaves the population of Bunnies with too few lucky rabbit feet for distribution over Easter. They go to the temp agency to fulfill the vacant positions. One candidate, who would otherwise have had seasonal work, applies for the job – Father Christmas. Could Father Christmas ever become a good EBED employee? I would argue not, owing to his natural appetite to Risk. Father Christmas can’t tolerate the idea of distributing presents where there is even the slightest risk of them getting lost. So Father Christmas breaks into homes and leaves gifts under a huge green tree (a tree indoors??) with flashing lights owing to the fact that his mental schema leaves him physically unable to tolerate the risk of losing 5% of gifts. He is thus unable to meet a 95% distribution target.
So, to conclude, in order for an organization to provide a positive risk culture to allow for good risk decisions three things have to be in place, risk training, risk incentives and risk based recruitment. How else would we get out Easter Eggs this year?