This is the second in a series of blogs on risk culture. In this post, we address the fundamentals of improving an organization’s risk culture. Subsequent posts will delve into how to measure, analyse, and manage an effective risk culture, how to understand what ‘good’ looks like and how to influence your risk culture to support business objectives.
In a volatile and changing business environment, with pressure from shareholders to achieve quarterly performance results, long-term risk management often takes a back seat to short-term targets. However, while quarterly goals and flexible maneuvering can help to satisfy some stakeholders’ requirements, they can also impede strategic success.
Improving the risk culture for business success
An integrated, forward-looking approach to risk management, founded on a clear understanding of the organisation’s risk culture and its influences, gives leaders the power to shape strategy to match desired outcomes. This can be the difference between success and failure.
To influence and improve a risk culture, an organisation must use both a top-down and bottom-up perspective. Doing so will help identify and mitigate the risky behaviours which underpin safety outcomes and help reduce, for example, safety incidents, accidents, fines and claims, and ultimately help lower the total cost of risk.
The role of leaders: setting the right tone
The role of boards and CROs, as well as other risk specialists, is to clearly articulate a balanced and business-orientated view of risk – the ‘tone from the top’ identified by regulators. This then forms the basis for educating and advising the rest of the organisation.
It is critical that leaders perform strongly during crisis management, responding quickly and decisively while under pressure. The training of individuals in leadership positions, as well as those with crisis management responsibilities, enhances both the individual’s and the organisation’s capability to respond in an effective and efficient way.
Risk and safety cultures develop over time, and leaders play a crucial role in helping them
mature. Business leaders need the knowledge and skills to take an organisation towards an accident- and incident-free environment. Leadership workshops can provide senior management with the knowledge and skills that build and reinforce a strong risk culture throughout an organisation.
Measuring risk culture – the importance of quantification
Measuring risk culture is important for internal assessment and risk culture management, and will help companies meet relevant regulatory and governance requirements. Much of an organisation’s risk culture lies ‘beneath the surface’. Important cultural characteristics may not be immediately apparent, but they can be identified, measured and understood using two key assessments covering:
Individual risk profile
Applying well proven psychometric assessment to employee groups that manage risk or represent material risk exposure can help organisations understand their combined risk profile. For example, assessing leadership can help organisations assess their senior management group’s propensity for unduly risky or risk-averse behaviour, and the whether the tone set from the top matches the desired risk profile.
Employee risk survey: finding the hot spots
A risk survey uncovers the collective impact of employee views and behaviours. A survey enables measurement of key aspects of risk culture and assessment of findings in
the context of external norms to identify the drivers of employee risk attitudes, highlight potential risk hot spots and answer core questions such as:
- How safe do people feel it is to speak up?
- How do they view the example set by leaders?
- Do employees feel a sense of personal responsibility for managing risks in the business and do they feel it is necessary to adhere to risk controls?
- Do performance management or bonus metrics make them more prone to risky behaviour?
Next in the series – How to measure risk culture, where we’ll look at the importance of measuring risk culture, including the regulatory perspective, and what you need to understand in order to measure it.
For more information on Risk Culture, please contact your local Willis Towers Watson office of visit www.willistowerswatson.com.