My fundamental question is why risk management is considered critical only when there is a major crises. After a crises, there is hue and cry, and a post-mortem exercise is conducted. Whereas, implementation of preventive risk measures would have preempted the disaster.
Let me take two examples, from the recent articles I had published - Corruption is King and Microfinance Institutions- Entitled to Torture.
In ‘Corruption is King’ I highlighted the fact the CWG Delhi games were facing problems from significant corruption issues due to which India’s reputation as a country was getting affected. Post games government has scheduled an investigation on all the expenditure. Central Vigilance Commission (CVC) has launched an investigation, tax authorities have conducted raids and various members of the organization committee are being implicated. The final report is expected to be issued in three months by a committee headed by former Comptroller & Auditor General (CAG) of India.
In ‘Microfinance Institutions- Entitled to Torture’ I focused on the fact that microfinance institutions were exploiting poor farmers and in some cases the farmers were committing suicides as they were unable to pay off the loans. Last week Andhra Pradesh state government passed a law to monitor the operations and performance of microfinance companies in the state. Reserve Bank of India has set up a committee to decide on the norms for monitoring microfinance companies all over India.
Both the above examples show that effective action is being taken after the crises has occurred and public is outraged by the improprieties in governance. My question is, why were no measures put in place for proper governance at the begining of the project? CWG Delhi games project and microfinance institutions both were operating for over 5 years. Preventive risk management procedures would have averted these disasters.
A governance structure should be implemented for all medium to large projects at the time of project conceptualization. It should be designed to meet the social and business objectives, encourage effective use of resources and ensure accountability for utilization of resources. Establishing a governance structure for a project would entail the following:
- Form a management review committee at the beginning of the project. The committee will be responsible for establishing guidelines and policies, periodically monitoring performance of the project and ensure proper measures are taken to mitigate risks. The committee members should be independent of the project and have no stake in the execution of the project.
- Identify the critical risks of the project. For example, in CWG Delhi games project cost, quality and time were important. A risk manager should be appointed to provide an independent evaluation of project performance and risk mitigation plans to the management review committee.
- Policies and procedures should be formulated for employees, customers, suppliers and investors considering the legal, regulatory and ethical environment of the community.
- Exceptions should be dealt with timely and appropriately.
The above mentioned measures are simple to implement and easy to monitor. They provide an effective preventive mechanism for major disasters and financial losses. The mindset should be - a stitch in time saves nine. Don’t wait for a crisis to occur to start fixing things.