Todd Davies asks if a changing environment is a new norm – and explains how risk professionals can cope

Change is happening at a greater scale than ever before. We see it every day. This creates great uncertainty for the organisations that we serve, and should be a boon for us as risk professionals. After all, we’re in the business of managing uncertainty, or at least that’s what ISO 31000 tells us.

But the reality is that most people in the audit, risk and compliance fields aren’t dealing with uncertainties at all. We know that most of the risks that we anticipate are going to happen at some point in some sort of predicable manner. The only thing we don’t know is when or on what scale.

So as we merrily trundle along addressing these known-risks with known methods we add checks and balances. We add layers of approval. We write policies and procedures.

This is all great stuff in a steady-state environment. The only problem is that a steady-state environment isn’t the norm any more. In fact it hasn’t been for some time. Maybe you’ve noticed.

And in a non-steady state environment, the best risk response is the ability to adapt at short notice. This means scaling up capability quickly and dismantling it even faster. It also means the ability to innovate, scale and adapt could become more important sources of competitive advantage than existing assets and infrastructure.A truly frightening idea for most of us.

Heresy you may say. But have a look at the top 50 list from any stock exchange from 20 years ago and compare it to today. You won’t recognise much. A lot of change can happen in a very short time.

So back to today. With all of this change this in mind, does adding checks and balances add agility, or reduce it? How about layers of approval, or layers of policies and procedures? Or are we calcifying our organisations and making them less able to adapt?

Risk management is about allowing for success under multiple scenarios. In everything we do we must remember that steady-state is only one scenario, and possibly an unlikely one at that.

Charles Darwin said ‘It is not the strongest of the species that survive, nor the most interesting, but the ones most responsive to change’.

When we can manage risk by creating greater agility then risk management will stop being part of the problem and start becoming part of the solution.

This article appeared as a cover story in the inaugural web-based version of Risk Management Magazine.

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Risk and Responsibility (AHAUCHI Conference, September 2009)

[Streaming video: YouTube - 3 parts, 22 minutes total]

Presented as part of a three day strategy and leadership conference on the future of residential colleges, Todd Davies provides insights into the nexus between governance, leadership and risk, and provides a whole systems perspective into regulatory reform, avoiding the next GFC and the future of leadership on these dimensions.

A Leader’s Responsibility: Governance, Risk and Resilience (AHAUCHI Pre-conference, August 2009) [Streaming and downloadable audio: Resilientfutures.org - 1 part, 26 minutes total] As part of the lead up to the AHAUCHI sessions, Todd discusses the new context for the governance and risk responsibilities of leaders, especially directors and managers; the breakdown of conventional methods of risk and governance management in dealing with these conditions; the consequences of such a breakdown; new processes for more realistic governance, risk and resilience.

The Real Risks of Business as Usual  (Resilient Futures Forum event – “Planning for Growth: Water? Climate Change? Economic Shocks?, August 2008)

[Streaming and downloadable video: Resilientfutures.org - 1 part, 15 minutes total]

This is essential viewing for anyone in a governance, leadership, assurance or strategy role in a large organisation – corporate or government. This presentation is particularly timely given current conditions, increasing market turbulence, and the move by stock exchanges and regulators around the world who are beginning to expect CEOs and Boards to have a strong understanding of ‘material business risk’, and hence strategic risk.

There is also a lot of great material on the resilientfutures.org website and their Youtube channel.  If you are interested in understanding the future, complexity and the challenges and opportunities arising from this, these sites are well worth a look. Enjoy. TDA

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Can your organisation continue to prosper as conditions change?

Organisations are facing greater challenges than ever before.  As a leader if you feel that you are facing more change than ever before, you are not alone.  The nature, scale and frequency of change is increasing which is putting tests on the resilience of all organisations.

Increasingly, the term resilience is popping up with a number of variants – enterprise resilience, organisational resilience, business resilience and others.  Some variants are narrow dealing only with a part of the problem.  Resilience from a HR perspective often talks about personal resilience – in other words, the ability of an individual to bounce back in the face of adversity – something akin to personal tenacity.  Resilience from a risk perspective is often limited to business continuity or crisis management.  Both models tend to plan for and react to disaster rather than empowering organisations and leaders to navigate strategically.

TDA takes a holistic view of resilience using the models embodied in the Resilient Futures Network models to answer the simple question for leaders – “How can we continue to prosper as conditions change?”.  Our models bring together the key aspects of strategy, risk, governance, leadership and assurance to allow for organisational resilience and transformation.

We can assist in a range of ways depending on the needs of the organisation with a range of modules and entry points including:

• Primer – introduction to the concepts of resilience and and understanding of why this is business critical and a potential source of ultimate competitive advantage for your organisaton
• Initial diagnostic – initial assessment of key conditions and capabilities required
• Strategic risk assessment – a deep understanding of emerging conditions, key depedencies and how this will affect the organisation’s business model going forward
• Resilience capability assessment – does the organisation have embedded resilience?  What maturity level is the organisation at now?  Where does it need to be?
• Catalytic projects – demensioning catalytic projects to transform the organisation
• Resilient leadership – training leaders within the organistation on key capabilities to allow for organisational transformation
• Program and project management – ensuring what needs to happen does actually happen

After nearly 20 years working in risk and organisational transformation roles I’m convinced that the next five years will be the most disruptive we are likely to see for a generation.  Those who understand and embrace the concepts will be incredibly well placed to create shareholder wealth and outcomes for their stakeholders.  Those leaders which don’t get their head around resilience are likely to preside over  significant value destruction and be the case studies for poor governance of the future.

For a briefing, please contact Todd Davies on (02) 9043 1719.

Need more information first?

Read Todd’s latest articles on the Resilient Futures Network which demonstrate how key events are unfolding today and how outcomes could be different by embracing organisational resilience.

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Success is a lousy teacher. It seduces smart people into thinking they can’t lose.  Bill Gates

Most managers feel well equipped to understand and respond to the regular crises that emerge day to day in the business as usual environment. Risk management processes have permeated most organisations which give middle management a sense of comfort that they have things broadly under control.

But those who read the financial press will be aware of emerging state changes which are not picked up by their normal risk management processes.  As such, Directors and Chief Executives reviewing their risk profiles often feel that all of this effort in risk management is missing the big picture.

Emerging risks are known by many names.  Strategic planners call them external shocks.  Resilience practitioners call them discontinuities.  Risk practitioners call them strategic risks.  Economists call them corrections. Taleb calls them Black Swan events.  Greenspan calls it the age of turbulence.

Whatever you call them, an understanding of emerging strategic risks is critical to leading any organisation.

We have a habit of confusing the unprecedented with the unlikely.  Al Gore, Sydney Hilton, July 15, 2009

Todd Davies & Associates draws on a broad range of experts from a range of fields to provide briefings, training and advisory services on:

• Making sense of emerging and interconnected structural shifts, and how to turn these from strategic risks into strategic opportunities
• Making sense of unprecedented risks which are becoming increasingly certain
• Detailed briefings on each of these structural shifts
• Assessing and developing the capabilities in organisations to assess strategic risk on an ongoing basis.

To find out more, call Todd on 02 9043 1719, or email us to arrange a meeting.

What our clients are saying

“We brought Todd Davies in to conduct the “Understanding Strategic Risk” training sessions and they proved to be very worthwhile. Our audit staff appreciated the insights into sources of strategic risk from a local to a global level. No less than six methods of developing strategic capability were discussed providing something for everyone dependent upon your methodology, fit and preferences. Sound value.”  Allan Reidy | Head of Westpac Retail & Business Banking and Product & Operations Audit, Westpac Banking Corporation

Find out more first

Watch a 15 minute video presentation from Todd on gaps arising from typical risk management processes

Listen to a 25 minute audio interview with Todd on some of the key issues for leaders today

Read a brief article on strategic risk and how this fits in with regulation and standard setting

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I’m really pleased to announce that the Resilient Futures website went live today.

Resilient Futures was formed in April 2008 as a result of a number of practitioners in various fields believing that the current thinking in their respective professions was inadequate in dealing with the problems of tomorrow, and that resilience thinking and the concepts underpinning it provide much needed clarity in a rapidly changing interconnected world.

The Resilient Futures partnership consists of a divergent practitioners in strategy, risk, urban planning, leadership development and networked systems.  There is a range of innovative but practial thinking coming out of this one and I encourage you to have a look around, read a few articles, download a whitepaper or two, and subscribe to the RSS feed.

I particularly encourage you to have a look at my recent article Are you being a reckless leader without realising it? which gives a feel for where some of the thinking is heading, or our offering on emerging risk analysis here.

Resilient Futures can be found at www.resilientfutures.org.

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• Clarity and unity of vision and sponsorship by internal stakeholders
• Clarity of responsibility between the various assurance, risk and compliance functions
• Efficiency in delivery
• Optomisation of risk and assurance coverage
• Increased risk-sensing ability
• Streamlined implementation with minimal false-starts

In short, bigger bang for buck and more engaged and satisfied stakeholders.

Please click on a link below to find out more about the type of work we typically get involved with.

Vision

• Vision setting
• Benchmarking
• Internal audit self assessment
• Enterprise governance framework

Enabled by High Performing Teams

• The Virtual Chief Audit Executive
• Getting the most out of internal audit sourcing
• Coaching for rising stars
• Getting the right staff on board

Powered by Leading Practices

• Internal audit transformation
• Audit committee best practices
• Assessing the adequacy of your risk framework
• Understanding GRC software solutions
• Strategic risk and emerging risk capability
• Stress testing your risk profile
• Compliance with the ASX Corporate Governance Council Principles and Recommendations

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