A healthy risk culture hardly ever happens instinctively in an organization. The culture is instilled when ERM leaders define and encourage character traits and practices that support effective ERM behaviors in people. Here are a few cultural traits for effective ERM:
To be accountable in ERM means, the leader and employees alike have to understand how the decisions and actions contribute to create and protect value. True accountability requires people to embrace their roles and responsibilities for risk-taking and risk management.
The leadership team should clearly define and articulate goals for appropriate behavior. The employees and the ERM Software team have to be constantly encouraged and rewarded for suitable risk-taking and risk-response actions, which is a powerful motivator. Likewise, it is extremely important to tactfully and consistently discourage employees from taking inappropriate risks.
To inspire a proactive ERM culture, an optimistic and forward-thinking mindset is required. A proactive culture comes when an organization takes a futuristic approach to anticipate risks and prepare to suitably act on them. The leadership role is the key to developing a proactive culture. If the leader actively makes proactive decisions, he sets an important example throughout the organizational funnel.
Although effective risk management combines both intuition and disciplined thinking, intuitive risk management is not sufficient for a business that is constantly changing and laden with complexity. Disciplined thinking and adopting a systematic approach overcome the cognitive errors made by the employees in the organization. They help analyze intricate and unfamiliar situations and think through the enduring implications of risk management decisions and actions.
Open and inquiring culture
Effective Enterprise risk management solutions requires sincerity from every single employee of the organization. Failing to cultivate a culture of openness creates blind spots to KRIs and risk management in general, which leads to under performances and failed strategies. An effective strategy to encourage openness starts with breaking the ‘cage of silence’ and identifying barriers that prevent open communication. A culture of openness requires dexterous communication, dynamic team management and leadership.
The culture encourages employees to be inquisitive, exchange and gather information, and also fosters learning and innovation. An inquiring culture helps in identifying opportunities for growth, improves processes and ultimately, performance.
There are several other cultural traits that impact risk management in any organization. I will discuss them in subsequent blogs. Meanwhile, do share your thoughts on the ERM culture in your organization.
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