Businesses must have a system to manage risks

By Pae Ki-pyo

I visited a bio-ethanol plant in Chicago a few years ago and naturally came to observe their safety training.

What amazed me at the time were the earnest and resolute attitudes shown by employees participating in the safety training. They were in the middle of a responsive simulation, quickly and systematically performing their own responsibilities and roles according to the detailed manual of the plant's risk management system.

This practice was like an actual situation. I recalled this memory after experiencing the recent suffering of our society, and looked into the risk management systems of Korean companies.

I recently asked some entrepreneurs about whether they established a manual on risk management and are conducting relevant education programs. Most of them responded that their risk management is quite limited to safety training at facilities.

Corporate risk management systems refer to frameworks intended for systematic response to diverse and complicated crises that can occur under rapidly changing internal and external management environments. Risk categories subject to management vary.

They can be largely categorized into ''leader risk" related to managerial decisions made according to the sudden absence of the chief executive officer and important human resources; ''safety risks" related to various accidents that may occur during business operations such as production and sales; ''financial risks" related to cash flow; ''internal control risks" related to ethical management such as accounting scandals and embezzlement; and ''management strategy risks" related to the ability to cope with a rapidly changing management environment such as appearance of strong competitive products.

The system must strictly prepare for the following matters in order to manage such diverse risks. First, companies should turn all past risk cases into data for analysis, and separately monitor predictable and unpredictable risks based on risk cases found in the same industry.

By identifying and assessing risk factors, importance level of risk must be set forth to efficiently and effectively regulate the handling process. Once a company implements systematic risk management ability unlike most companies in the same industry with similar business structure, the company can prevent the spreading of crises and use crises as opportunities at the same time.

Second, the corporate risk management manual must be very specific and realistic. Case-by-base response scenarios are to be established for various risk factors. These scenarios need to specify the definition, characteristic and type of crisis for each area of risk management, as well as authorities and the roles of participants and managers in the crisis meeting, or risk management task force team. In particular, the scope of voluntary and creative crisis response and authorities of the manager must also be specified if necessary depending on the industry and risk category.

When such risk management systems are set in stone, decisions can be made quickly and precisely, despite any management crisis. Also, an organization's ability to stably respond to crisis is enhanced by specific and systematic process. Instead of formal logic, an actual function of an action-oriented manual is properly expanded in the midst of crisis.

A management audit system for ethical management can be naturally established in the process of manual preparation, and the organization can internally encourage its members to have understanding of, agreement with and active participation in the company-wide management strategy responding to management crisis. Especially, reinforced organizational culture of ethical management increases self-esteem and respect of organizational members and improves the company's reputation from external members of value networks such as suppliers and consumers.

Crisis is an opportunity. In the process of overcoming crisis, companies can show progress through development of corporate resources and capacities for long-term future management. I hope companies of Korea will establish risk management systems in order to turn crises into opportunities.

This is the true stepping stone for sustainable management and a win-win relationship with members of our society. In the spring of 2014, companies of Korea will finally be reformed, for sharing of safety and prosperity.

The writer is Washington State‘s CPA and CEO of Copetition Consulting Company. His email address is ceo@copetition.co.kr.

Site Map E-paper Subscribe Register LogIn
Site Map E-paper Subscribe Register LogIn