Risk management is at the core of any successful organisation’s ability to not only survive, but thrive, in uncertain times.
Whilst traditional approaches focus on risk frameworks, risk processes and risk reporting, a well-developed organisational risk culture remains an often-overlooked yet important factor in shaping how well risks are handled, incl. identified, perceived, assessed, and managed.
But changing, let alone shaping, the organisational culture is far from easy and it has often been cited as one of their toughest challenges by my clients.
As a risk management adviser, I have seen firsthand how deeply ingrained procedures and perspectives can stand in the way of implementing positive improvements of handling risks effectively.
Yet, when done so successfully, the impact is transformative and enhances the organisation’s ability to foster resilience, adaptability and effective and efficient decision-making.
Here are 6 important areas affecting the risk culture:
1. Risk Perception and Awareness:
A healthy risk culture is significant for how employees and leaders identify and understand risks.
For example, in organisations with an open and transparent culture, employees at all levels might be more inclined to report potential risks or vulnerabilities and early detection of problems enables earlier handling. Simply put: Good news travel fast – bad news should travel faster.
Conversely, in a more hierarchical or blame-driven culture, risks might go unnoticed or unreported due to fear of repercussions.
2. Risk Taking, Risk Appetite and Decision Making: The organisational culture dictates the organisation’s approach to decision making and its tolerance for risk. A more conservative culture might prioritise a more detailed decision making process to avoid risks and to maintain stability, while an innovative culture may embrace calculated risks in a faster and simpler decision making process to achieve growth and competitive advantages.
3. Communication and Collaboration:
Effective risk management requires open and effective lines of communication across different teams and departments.
A collaborative culture fosters better information sharing and joint problem-solving, which are crucial during risk assessment and crisis management.
4. Risk Perception and Awareness:
Organisations with a strong culture of accountability encourage individuals to take responsibility for managing risks within their areas of responsibility and influence.
This ensures risks are addressed proactively rather than being overlooked or shifted onto others.
5. Adaptability and Resilience: Dealing with incidents or in times of crisis, an adaptive culture promotes flexibility and creativity in finding solutions. Resilient cultures tend to be better equipped to handle uncertainty and complexity and therefore also to recover from incidents and losses.
6. Decision-making Processes:
Cultural values shape the processes and the framework within which risk management decisions are made.
They are tested every day in the small, seemingly routine choices and decisions, that shape an organisation’s resilience and adaptability.
It is about being proactive, not just reactive, and embedding risks in all their facets into the fabric of the organisation.
Some believe strong risk culture and decision-making need a crisis to prove their worth.
What is your experience of risk cultures – or lack of?