Why Risk Assessments Fail

Mitigating risk to the business is an essential leadership function.  The number of business failures may give us a clue to how many companies do it well.  Obviously it is more complex than that but I like to keep things simple.

The longer you stay in business the more you need an effective risk management process.

The facts are:

Over two decades, up to 75 percent of businesses in certain fields fail. Survival rates follow a universal downward trend, as the years of operation increase, with 50 percent of businesses failing after 5 years and 75 percent failing after 17 years, notes U.S. Bureau of Labor Statistics.

Between 1994-2010, the survival rates of private establishments ranged between 25 to 50 percent, reports U.S. Bureau of Labor Statistics.

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Common Failure Points Within a  4-Phase Risk Assessment Process

PHASE 1: PRE-ASSESSMENT PREPARATION

  • Inadequate planning and communication
  • Lack of process alignment with strategic business activities
  • Misconception of participant time commitment

PHASE 2: ASSESSMENT – DATA COLLECTION

  • Focus on current or past risks rather than future risks
  • Generic rather than specific and tailored risk inventory structure
  • Using simple assessment tools for complex risks
  • Lack of defined perspective and timeframe leads to inconsistent responses

PHASE 3: ANALYSIS

  • Ineffective or non- existent risk prioritization criteria and methods
  • Creation of unmanageable risk lists vs “TOP” risk profile (risk management is not list management)
  • Excessive elapsed time from initial identification to action results in “stale” risk list

PHASE 4: ACTION

  • Failure to communicate, validate and gain alignment of identified key risks with executive management
  • Ineffective reporting content and design
  • Incomplete or lack of comprehensive risk plans or incorporation into business decisions
  • Viewing the assessment as the end of the risk management process

Participant time constraints can be a barrier to successful risk assessment process.

The total time commitment for most senior management members involved in an annual risk assessment should not exceed six to eight hours. (PWC 2015)

How to Avoid These Common Failures and Improve Your Risk Assessment Process

screen-shot-2017-01-24-at-11-20-20-amWhen asked about the effectiveness of their risk assessment process many leaders see the need for improvement.

6 Triggers that Indicate a Need for Risk Assessment and Management Improvement

  1. Board of Directors or Sr. Executives question top risks and the framework to identify, understand, evaluate, report, and mitigate risks
  2. Challenging business or industry events or trends, and concern over how the risk management program would discover or address risks
  3. Changes in leadership structure, organization or business model
  4. Confusion over risk assessment process, roles, and responsibilities
  5. Strategic initiatives such as new market expansion, acquisitions or new product introduction create concern over ability of existing processes to address new types of risk
  6. Failure! has occurred and indicates a lack of ability to identify and mitigate a risk resulting in significant negative impact to the business

screen-shot-2016-12-29-at-5-35-56-pm6 Common Improvements to the Risk Assessment Process

  1. Reignite mature process (promote internal support and excitement – stop going through the motions.)
  2. Refresh of inputs to be current, relevant, and valuable
  3. Increase organization capabilities for conducting risk assessment activities consistent with driving results
  4. Reframe participants as customers of the process delivering value in better business decisions
  5. Refocus on the big things through better and effective risk identification and prioritization
  6. Create ACTION through better alignment, communication, and teamwork.  Why are we conducting this assessment? What is required? What was discovered? How can the risk assessment results support business decisions?  What action will we take as a result?

The most common failures concern taking ACTION.

  • Not knowing what action

  • The wrong action

  • No action

Do you need better inputs that drive action for your risk assessment process?

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APPLIED GROUP CONCEPT MAPPING

is an effective, productive way to gather insight from your organization and translate it to valued-added, action-oriented inputs to your risk management plans.

screen-shot-2017-01-24-at-11-47-48-amIt streamlines, and combines the best practices of brainstorming, sorting, rating, and analysis that translates qualitative data into quantitative results.  This facilitated process is made cost-effective and available through software support.

Learn more about INSIGHTOVATION® Consulting’s APPLIED GROUP CONCEPT MAPPING here.

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APPLIED GROUP CONCEPT MAPPING is an extremely flexible group process that creates action-oriented inputs for direct use in strategic planning, risk assessment, employee engagement process.

Ready to take action?  Call us to learn more.

Karen Dworaczyk
INSIGHTOVATION® Consulting
+01 (585) 820-7761
9 AM – 5 PM EST Weekdays
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