I will like to thank all my readers for their positive comments and feedback. We will dig slightly deeper this week by introducing the concept of the Risk Management process.
The process of risk management is something that is both alien to us and yet familiar. The familiar process is to think through the following sequence;
• What do I want to achieve?
• What are the uncertainties around achieving that?
• How likely are the uncertainties to happen?
• What’s the effect, or impact of the uncertainties on the outcome?
• What do I do to maximise the opportunity and minimise the threat?
In an organisation, all of this is within a dynamic programme of monitoring, reviewing and communicating the inputs and outputs.
Think about when you did this process last. The human body has an inherent risk process built right down deep into your DNA.
The risk process is to risk management as blood is to the human body. The blood is the life-giving fluid. It is the energy that gives the body life. However, this energy is not much good if the body has no arms, and limbs. For risk management, the body could be the framework, the arms and limbs are the management activities, the toes are the governance processes, the fingers are the people within the organisation. The glowing skin and vibrant hair are the outputs. The food we eat, sun, air, water supply the nutrients that are needed to sustain the body and are the inputs like data, experience and knowledge.
The actual process of risk management is the invisible blood driving risk improvement, and it is the same throughout all aspects of risk management, whether we are talking about treasury, credit, market, liquidity, operational or any other kind of risk management in the public or private sector.
The reason why it is invisible is because you can only see it based on its effect, i.e. the risks (uncertainties) are mitigated, objectives are met with a certain degree of assurance – threats get smaller and opportunities get larger.
We can relate this concept to the poor state of our development due to lack of electricity. In the Nigerian manufacturing sector, poor electricity supply remains one of the formidable challenges with the attendant negative implications for the sectors contributions to the nation’s Gross Domestic product, GDP.
It does not appear that we have a clear Risk Management framework being implemented and driven by efficient processes in this sector.
This fear was recently confirmed by the statement by the Transmission Company of Nigeria (TCN), which said that the nation’s power generation capacity dropped from 3,959 megawatts on January 4, to 2,662 megawatts on January 22. This is clearly inadequate for a country of over 200 million, with an energy demand of over 30,000 megawatts.
The further aspect that we explore next week is about using risk management to ensure that the capacity remains adequate at all times, even if the threats to growth, return and quality become larger than expected. In other words it’s about enough capacity to cover things if the worst happens.
Good risk management processes are an invisible part of the ‘way we do things around here’, just like the blood in the body.
Good risk management with sound and efficient PROCESSES is not just a way to meet set objectives; it is the way to guaranteed success.
• Mbonu FERP, HCIB, CIRM(UK), MBA, MsRM(Stern), B.Eng . A qualified Engineer, is an experienced Banker and Enterprise Risk Management professional. Earned a post graduate degree in Risk Management from New York University Stern School of Business, and is a Member of the UK Institute of Risk Management (IRM). Can be reached on 09092092046 (SMS Only); email: email@example.com