Page 16 - Internal Auditor M.E. - June 2019

risk Management

By: James Creelman
Risk-Based Performance Manage-

ment: A Framework for Integrating

Strategy and Risk Management

Strategy and risk are two sides of the same coin. No organization The financial crisis illustrated that in this the digital era, strategies
can implement a strategy without taking some level of risk. The cannot be responsibly executed by organizations without fully
more ambitious the strategy, the greater the risk: a simple equation. considering and managing the accompanying risks and, perhaps
most importantly, their appetite for risk: after all, most of the
To stay one step ahead of the competition (and even simply stay financial institutions that suffered catastrophic losses believed they
in the game) in this disruptive, digital era, firms are increasingly had sophisticated risk management instruments and processes.
challenged to implement “inventive” strategies. These strategies Appetite, alas, was hardly considered. As Citigroup’s Chief
require the introduction of breakthrough products and/or the Executive, Charles O. Prince, said back in July 2007, just before the
instilling of a radically new way of competing and so are, by some crunch, “As long as the music is playing, you’ve got to get up and
distance, riskier than conventional incremental strategies (doing dance. We’re still dancing.” And dance they did, all the way to a
what we do now, but a bit better) as the ultimate results are to a 90% fall in their share price.
large extent unknown: they are a set of assumptions. Few would argue that the competitive landscape is less hazardous
A Corporate Governance Issue today than it was when the crisis hit in 2008. Most would argue it
is significantly more so and much less predictable. To manage in
As well as providing day-to-day headaches for executive leaders, unpredictable markets, I would argue that we need an approach
the opportunities and risks of competing in the digital era is an that enables corporate boards and executive teams to keep one eye
issue for non-executive boards. on performance and one eye on risk.

16 INTERNAL AUDITOR - MIDDLE EAST JUNE 2019