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 Metcalf on risk-reward (24/06/2008)

Martin Metcalf, CEO of Strategic Thought Group, explains that, when it comes to risk management, the bottom line is that a true picture means more certainty about making the numbers.

Time was when risk management was a specialist function focused on what might go wrong and how it might be mitigated. Today, it is still associated with taking a cautious, even negative, view of the world.

Yet we can see change, some forced on us by a more dangerous world, some through committed organisational leadership and culture, and some through the power of information and software analysis tools.

In our view, next generation risk is not about risk, it is about risk and reward. Innovation and risk are inseparable.

The paradox is that market leadership belongs to those who take more – but better qualified - risk, confident that they understand what we call the true picture. Armed with this, the best companies free wasted resources to re-invest in growth, create competitive edge, and deliver better performance, in both strategic and financial terms.

Put simply, an enterprise risk approach, put into practice in a disciplined, structured way, adds value by reducing the cost of capital and optimising operational cash flow.

Yet it must be focused. While everyone in the business should be involved, there is a danger of micro managing – assuming that ‘enterprise’ means logging everything. Our experience is that risk and reward is about seeking out uncertainty where it matters – where it can materially shape delivery of the business vision, purpose and strategy. If a risk doesn’t impact business objectives, it is not a risk. Once risks are identified, the challenge is to build the kind of resilience that means whatever may happen, the organisation is ready with innovations fit for the changed environment.

This is an excerpt from an article written by Martin Metcalf for the Chartered Institute of Management Accounts. If you are interested in reading on, learning about the wild side of innovation, efficiently managing risk intelligence, using risk to price a contract, improving your margins and how our Active Risk Manager software can be used to provide the structure and discipline required to create a true picture of your business, then please click to download the full CIMA Risk and Reward article.