Fundamentals of Risk
Management: Understanding,
evaluating and implementing
effective risk management,
th
6 Edition
Part 6:
Risk strategy and culture
Key questions
• What are the features of a risk aware culture (LILAC)?
• What are the components of risk maturity of an organization?
• What is the importance of risk appetite?
• How can risk training and communication be summarized?
• What are the features of a risk competency framework?
• What are the skills required by risk practitioners (5Cs and CRAM)?
Learning outcomes
• describe the key features of a risk-aware culture (LILAC) and
how the key components are defined and can be measured
• describe the components of risk maturity of an organization
(4Ns) and the influence on risk management activities (FOIL)
• describe the importance of risk appetite and how this can be
demonstrated on a risk matrix, together with the risk exposure
and risk capacity
• review the nature of risk appetite statements and how these
can be used to influence decision making within organizations
Learning outcomes (continued)
• explain the importance of risk training and risk communication and
the influence on the risk culture of an organization
• summarize the importance of risk training and risk communication,
including the use of risk management information systems (RMIS)
• explain the features of a risk competency framework and the
relationship to plan, implement, measure and learn (PIML)
• outline the people skills required by a risk practitioner summarized as
communication (5Cs), relationship, analytical and management
(CRAM).
Risk management context
• Architecture, strategy and protocols
• Risk architecture
• Risk management strategy
• Risk management protocols
• Risk management manual
• Risk management documentation
Risk management responsibilities
• Allocation of responsibilities
• Three lines of defence
• Range of responsibilities
• Statutory responsibilities of management
• Role of the risk manager
• Risk architecture in practice
• Risk committees
Culture and behaviour: steps to successful risk
management
In order to improve the risk
management performance of an
organization, a risk management
initiative will be required.
The nature of this initiative will
depend on the size, complexity and
nature of the organization.
Although there is no single correct
approach, there are some of the key
steps in achieving successful risk
management.
Obstacles to successful risk management
It is vital that the risk manager identifies barriers to the implementation of the initiative in some detail.
There are a number of potential barriers to consider in relation to the successful implementation of a risk
management initiative
Lack of understanding of value of RM
Belief that RM suppresses entrepreneurship
Lack of support from senior management
Seen as irrelevant – another intitaive
Benefits not seen as significant
Not sore to business and time consuming
Too complicated and over-analytical
Unclear responsibilities: external costs resented
Separates responsibility from activity
Perceived as too static
Too expansive – becomes ‘management’ rather
than ‘risk management’
Defining risk culture
Risk appetite and tolerance
Risk appetite, risk exposure
and risk capacity
Risk appetite is illustrated by way of shaded squares on
the risk matrix and the overall risk exposure of the
organization is shown as a curved line.
This illustration represents risk appetite, exposure and
capacity for a risk-averse organization.
Risk appetite statements
Risk appetite is a reflection of the risk attitude and
the risk criteria that have been established by the
organization and the risks that it is willing to take.
Risk appetite can be a driver of strategy, planning
guide for tactics or a set of operating constraints.
Risk training and communication
• Consistent response to risk
• Risk training and risk culture
• Risk information and communication
• Shared risk vocabulary
• Risk information on an intranet
• Risk management information systems (RMIS)
Risk practitioner skills
Risk practitioner competencies
• Competency frameworks
Range of skills:
• Communication
• Relationship
• Analytical
• Management