Page 12 - Risk Management Bulletin Jan- Mar 2022

RMAI BULLETIN JANUARY - MARCH 2022

Lessons Conclusion
In short, exceptional organizations are those that go The wisdom of learning from failure is incontrovertible.
beyond detecting and analyzing failures and try to Yet organizations that do it well are extraordinarily
generate intelligent ones for the express purpose of rare. This gap is not due to a lack of commitment to
learning and innovating. It’s not that managers in these learning. Managers in most enterprises genuinely
organizations enjoy failure. But they recognize it as a wanted to help their organizations learn from failures
necessary by-product of experimentation. They also to improve future performance. In some cases, they
realize that they don’t have to do dramatic and their teams had devoted many hours to after-
experiments with large budgets. Often a small pilot, a action reviews, postmortems, and the like. But time
after time we see that these painstaking efforts led to
dry run of a new technique, or a simulation will suffice.
no real change.
The courage to confront our own and others’
Building a Learning Culture: Only leaders can create
imperfections is crucial to solving the apparent
and reinforce a culture that counteracts the blame
contradiction of wanting neither to discourage the
game and makes people feel both comfortable with
reporting of problems nor to create an environment
and responsible for surfacing and learning from
in which anything goes. This means that managers
failures. They should insist that their organizations
must ask employees to be brave and speak up—and
develop a clear understanding of what happened—not
must not respond by expressing anger or strong
of “who did it”—when things go wrong. This requires
disapproval of what may at first appear to be
consistently reporting failures, small and large;
incompetence. More often than we realize, complex
systematically analyzing them; and proactively
systems are at work behind organizational failures, and
searching for opportunities to experiment.
their lessons and improvement opportunities are lost
when conversation is stifled.
The reason: Those managers were thinking about
failure the wrong way.
Savvy managers understand the risks of unbridled
toughness. They know that their ability to find out about References:
and help resolve problems depends on their ability to Sources: From Neil Hodge (is a U.K.-based
learn about them. But most managers I’ve encountered journalist who often covers risk management)
in my research, teaching, and consulting work are far Article in Risk Management Magazine http://
more sensitive to a different risk—that an understanding www.rmmagazine.com/
response to failures will simply create a lax work Sources: Data extract from the article https://
environment in which mistakes multiply. medium.com/@ChunkaMui/how-kodak-failed
Sources: A version of this article appeared in the April
This common worry should be replaced by a new 2011 issue of Harvard Business Review. https://
paradigm—one that recognizes the inevitability of hbr.org/2011/04/strategies-for-learning-from-failure.
failure in today’s complex work organizations. Those Sources: https://economictimes.indiatimes.com/
that catch, correct, and learn from failure before industry/transportation/airlines-/-aviation/
others do will succeed. Those that wallow in the blame jetairways-naresh-goyals
game will not. Pictures: Dreamstime.com

Operational Risk

This is the risk driven by exposure to uncertainty arising from daily tactical business activities. An example
of an operational risk is the failure to provide financial statements to the Board for their review. Another
operational risk is the risk that the organization incurs a cybersecurity incident.

Liquidity Risk
Exposure to adverse impacts stemming from the mismatch of cash inflows and outflows. The risk crystallizes
where an organization is at least temporarily unable to meet its payment obligations as they come due.

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