Use Common Sense for Risk Analysis

The two weeks between Dussehra and Diwali are supposed to be spent in prayers as these are auspicious. North Indians’ celebrate it by having gambling parties every night. Card sessions, mostly Flash and Rummy, are held in homes, and these start around dinner and continue till 6 a.m. in the morning. The indulgence is called 3MW. M and W are alphabets which are upside down.

What is the link? Men spend their nights for wine, women and wealth. Women spend them on men, money and madira (alcohol). Quite a few careers, relationships and bank balances  are affected in these two weeks.

It is worth contemplating,  what makes human beings have such a huge appetite for risks and put their life’s hard work on stake. Hence, in this post I have covered three posts on risk management. The post describe risk management models, building a culture for risk management  and obtaining support from senior management.

1.     Risk of using Models in Risk Management – Part 1 & II (via Ontonix- Practical Complexity Management)

There is a pithy quote from someone (it could be the Black Swan guy) which goes something like “Dont cross a river because it is on average 4 foot deep”.

If that quote sounds like ancient Eastern mysticism, you would be surprised to know when it was made! In today’s tough economic times though, one wishes that people who were put in charge of making decisions had heeded this simple wisdom. But this is precisely what was overlooked by the financial market gurus – decisions were made because the calculated average loss in an investment was only “4-feet deep”! The erstwhile Lehman Brothers remains a poster-child for the fallacy of this sort of thinking.

2.     Building the case for ERM (via Norman Marks on Governance, Risk Management, and Internal Audit)

This week, a risk officer from a major UK company asked me how to move the mind of top management from thinking about enterprise risk management (ERM) as something they have to do (a ‘ check-the-box activity) to something they want to do.

I have found this to be an issue in all parts of world. Even where companies are appointing chief risk officers (CRO) and agreeing to a risk management program, their hearts aren’t really in it. Risk is not top of mind. The CRO is not at the executive table and does not participate in executive decision-making, such as the setting of strategies and plans.

Why? Because they don’t see risk management as something that helps them succeed. All the CRO is offering is insight into the top risks facing the company. Hopefully, this is driving actions to ensure those risks are monitored and remain within organizational tolerances

3.  Situational Awareness: Battlefield to Board Room… (Via Operational Risk Management)

Creating a “Common Operational Picture” for your organization is an elusive yet attainable goal for your senior management and the Board of Directors. How at a moments notice does the organization provide leadership with the answers to Operational Risk questions such as:

  1. How many employees from our company are currently traveling outside your home country?
  2. What are their modes of transportation and where do they plan to stay each night?

Have a nice time celebrating Diwali week, but do take care. Be safe and happy. I attended the Diwali bash in my apartment building last night. The residents had organized a cultural show by kids and a nice dinner and dance party. The kids were adorable and food was mouth-watering. An excellent fun-filled evening with no risks attached. Enjoy life with minimal risks 🙂

Impact of Organization Culture on Internal Controls

The COSO defines Internal Control as “a process, effected by an entity’s board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following categories: effectiveness and efficiency of operations; reliability of financial reporting; and compliance with applicable laws and regulations.” It further defines Control Environment as – “The control environment is an organization’s culture, beliefs, and values. It includes the integrity, ethical beliefs, and competencies of its people, which are visible in management’s operating style, how management assigns authority and responsibility, and how management organizes and develops its employees. Another indication of the control environment is the degree of involvement from its board or directors.”

In other words, Organization Culture is  the sum total of the psychology and attitudes which are communicated by the leadership team to the employees and the ethics, values and beliefs which are incorporated for execution of work and obtaining business objectives. Now that connections between internal control, control environment and organization culture are clear; the next question is what is the impact of organization culture on internal controls?

Let us understand the constituents of organization culture and drive the impact on internal controls.

Leadership: Organization culture is defined by the leadership of the organization. The CEO is the torch-bearer of organization culture. The mission, vision and strategy communicated by the senior management is the glue which holds the organization together and moves everybody in the same direction. Lack of clear direction, frequent and abrupt changes and arbitrary decisions in mission, vision and strategy contribute to the negativity in the organization culture. This also results in various departments having different work cultures and working in a counter-productive manner. This directly impacts the efficiency and effectiveness of business operations. Depending on the level and clarity of leadership communication, the organization at a macro level may be in high, medium or low risk as depicted in the adjoining chart.

Ethics: Business ethics show in all aspects of business conduct, from the board room strategies to the front desk personnel. It goes beyond legal requirements, and shows whether business is conducted on values of integrity, honesty and fairness. It shows whether employees at all levels are able to walk the talk. A clearly defined and implemented code of conduct improves the organization culture. However, an organization which has not implemented a code of conduct may have a negative organization culture. In such a case, decisions are taken arbitrarily, organization lacks transparency and may disregard laws and regulations to achieve profitability. Commitment to follow the business ethics, reflect whether organization has high, medium or low compliance risk. High compliance risk raises questions on reliability and authenticity of financial statements.

Attitudes & Beliefs: The psychology and behavior shown throughout the organization by the employees for doing day-to-day operations reflect the organization culture. Organizations show healthy attitudes where employees are rewarded on performance, there is lack of discrimination due to age, race, color and gender and there is minimal harassment and workplace aggression. Organizations having aggressive work cultures, which are number driven and lack humanity, impact the control environment negatively. In such cases, for the sake of efficiency, legal requirements are compromised. Carried to an excessive stage, the organization may become unsafe for work and/or shareholder investments. The control environment is such cases maybe seriously impacted,  as there is strong alignment towards unhealthy and corrupt business practices.

The above mentioned three aspects clearly indicate that organization culture has a significant impact on control environment of the organization. An internal control auditor would benefit from understanding and assessing the organization culture. An organization risk appetite, philosophy, and exposures can be determined while analyzing the organization culture. A risk dashboard and/ or internal audit program should be developed keeping the organization culture in mind. An internal audit report must mention the impact of organization culture on internal control environment and the risks the organization is exposed to, due to negative or unhealthy organization culture. Recommendations should be given to improve and build a healthy organization culture.

Microfinance Institutions – A Discussion on Proposed Norms

I recently joined GlobalRisk Community, a B2B platform for risk managers. I started a discussion on the proposed norms for the Microfinance Institutions (MFI) in the India Risk forum.

My question was in continuation of the previous topic “Microfinance Institutions- Entitled to Torture”. I had written that finally the Government of India has woken up to the plight of Indian farmers. Andra Pradesh government has established a new law to monitor MFI. Reserve Bank of India has formulated a committee to establish new norms applicable to the country. SIDBI has taken responsibility for not effectively monitoring MFI. Now the proposal is that NABARD will monitor MFI. How is this move being perceived by bankers and risk managers in India?

I am presenting here excerpts of the discussion. Mr Sheshadri Chari and Mr. Deepak Kumar Shaw presented excellent viewpoints.

Mr. Sheshadri Chari is a senior banking and risk management consultant with + 25 years of experience. He has worked in many banks in India, namely Bank of Baroda, Lakshmi Villas Bank and City Union Bank.

Mr. Deepak Kumar Shaw has +8 years of experience in banking and financial services industry. He has worked in various capacities in private sector banks and mutual funds.

Sonia Jaspal : In the current situation what should be done and what will happen according to you?  

Mr. Deepak Kumar Shaw: Till MFI will run for profit it’s not going to follow its core object of social uplifting of low-income groups. Basic idea behind establishment of these MFI was to save poor from moneylenders. But now they are no different from moneylenders in terms of interest charged by them and recent cases of forceful recovery strengthen this argument. With profit motive first there is pressure to distribute loans then to recover and these lead to malpractices. If this sector has to survive and wants to prosper then they have to do stick to their core objective i.e. helping the poor. In my view the following should be done:

First profit making MFI should not be allowed to operate as this will always lead to malpractice in the industry and if that is not possible then major percentage should go back to borrowers as relief or rebate. Benefit of priority sector interest rate enjoyed by MFI should be passed on to its borrowers.

Licensing should be stricter and only a few MFI should be allowed to operate in a region avoiding unnecessary competition between them.

Financial discipline should be brought to the sector in terms of reporting correct numbers. This could be done by introducing strict audit controls, preferably C&AG allotted audits. Finally a strict regulator like RBI should manage the MFI. This will help the industry to win back respect.

Sheshadri Chari : Government has been doing a lot – both on disbursement and waivers – which has been a contentious issue with commercial bankers. While the disbursements to weaker sections have been encouraged by a carrot and stick approach, using targets and subsidized interest rates, the waivers have been a dampener in terms of repayment psychology of the borrowers.

The MFI domain is a sensitive and challenging area. As Deepak points out, if social uplift is the primary objective of MFI, the profit motive becomes an anathema.

For a healthy growth of MFI sector, I believe there is a need for a balance between the social objective and profitability to ensure sustainability of MFI operations. That, first was the basis for certain target oriented lending approach – a policy stance adopted by the RBI. It is also not fair to ask the poor to bear the cost of their uplift by charging a hefty margin, though they should be morally inclined to pay back the society during their prosperity. Setting up of the committee by the RBI to review the position, in my interpretation, reflects this stance.

NABARD is the natural choice for regulatory role as it is the key player in formulating the schemes for social uplift in the context of rural poverty. In fact, the legislation on MFI should necessarily include tenets of financial inclusion that also touch base with urban poor.

At the end of the day, if MFI are able to reach out to the rural poor, energize them to achieve liberation from the debt trap and still make a decent margin through improved reach, business processes and a commitment to sustained service, such MFI should be allowed to flourish within the accepted banking practices for credit delivery and recovery.

MFI is essentially engaged in a banking activity and thus required to be brought under the purview of RBI regulatory framework keeping in view the specific objectives for which the MFI are established in the first place.

Sonia Jaspal: Deepak and Seshadri, thanks for sharing your viewpoints. I agree with you. I especially like your point that the poor should not bear the cost of their own uplifting by paying higher interests.

My concern is that though it looks like the government has finally acknowledged the problems, they will again issue paper policies and there will be no change at the farmer level.  We will be back to square one and see many more farmer suicides.

What is your opinion regarding it?

Sheshadri Chari : My use of the term “sensitive” was to emphasize the nature of challenges in this sphere of financial activity and risk taking.

This segment is a good market – in the sense that it is a felt need. At the same time, given the Indian culture, particularly , political, it is a challenging task. Your concerns are shared by the states like Andhra Pradesh, West Bengal, and Kerala where the problem of higher interest rates and employment of recovery agents for debt recovery have drawn official responses resulting in the review by RBI.

I believe the solution lies in strengthening rural markets so that the rural poor have chances for poverty alleviation within their command area than relying on increasing the cost of marketing by looking to urban markets. In India, we need to move from Metropolitization to Ruralization – providing self-sufficient communities, who can expect to achieve a reasonable standard of living. Development of SEZ will provide a good market for the farmers – but this will, initially, at least need government intervention.

There are connected issues here as well. Such as the inflationary trends in basic food prices.

Well, are there solutions that do not create fresh problems?

I am veering round to the conclusion that life is one of managing solutions, not problems

Sonia Jaspal : Thank you for sharing your viewpoint. The takeaway is that stricter controls and monitoring process should be established by Government of India. Reserve Bank of India and NABARD should play an active role in monitoring MFI. The rural poor should be supported in their efforts for better standard of living. Benefits of lower interest rates, waivers and profit-sharing should be given to them. 

As per World Bank estimates 42% of the Indian population is still below poverty line. Interconnections between low-income groups, volatility of food prices, and dependency of agriculture on monsoons should be considered while devising solutions. Government intervention and private participation is required to bring up farmers standard of living. Sincerity and commitment are essential to resolve this situation.

In invite you to share your opinion on the actions which Government of India should take to improve the standard of living of the poor farmers.

Senior Management Commitment to Risk Management

The heads of risk management department in the organizations are generally battling with the answer to one question -“Is my senior management committed to risk management initiatives or are they just providing lip service?” To gauge the commitment, risk managers need answers to some tough questions. Risk managers need to come out from under the cloud of unknowing and false perceptions.

Here is a list of 15 questions which help in providing a reality check.

  1. Is the head of risk management having representation at the board level?
  2. Is the head of risk management having direct reporting to the CEO of the organization?
  3. Is risk management a parameter for determining CXO and board members performance compensation?
  4. Is risk management appearing in the balance scorecard of the CEO?
  5. Has the board assigned risk oversight to audit, risk, governance, and / or compliance committee?
  6. At what frequency does board interact with the audit, risk, governance, and / or compliance committee and its members?
  7. Are the recommendations suggested by the audit, risk, governance, and / or compliance committees implemented by the board?
  8. At the time of formulating strategy and business plans, does the board invite head of risk management to give an assessment of risk exposures?
  9. Does the senior management have an organization wide risk dashboard which they refer to for daily monitoring of operations and activities?
  10. Are risk management departments given equal importance by senior management in crises and regular operation days?
  11. Are the proposed strategy, plan and budgets of risk management department approved to a significant extent on a priority basis, at the same level with the business operations departments?
  12. With the increasing complexity of business operations, have the risk management departments grown in size and importance?
  13. Are the risk management department heads allowed to present contrary views (in respect to business operations) to the board and are these accepted?
  14. In the recent years have the risk management departments been downsized due to financial or other constraints?
  15. Was any head of risk management department services terminated in the past for pushing risk management agendas and taking a tough stance?

Answer these questions to find how the senior management perceives risk management departments and their level of real commitment to risk management activities. If the answers for questions 1 to 13 are negative and 14 and 15 postive, then the risk managers do not have support of the top management. In this situation the risk managers are focusing on addressing risks for junior and middle management, and not the senior management.   They need to develop a strategy to get senior management commitment and support to be effective at an organization level.

Gender Diversity in Organizations

North Indians’ on 26th October will be celebrating Karva Chauth. On this day, a wife keeps a fast for long life and good health of her husband. She wakes up before sunrise and has some food. She has to pass the whole day without food or water. The fast is broken by her husband giving her water and food after she sees the full moon. The festival is a way of demonstrating love and commitment in the marriage. Even working women follow this custom religiously, and though they come to office, they work while fasting.

Indian women are managing huge disparities in their roles as wife, mother and career women. The balancing act which they have to play leads to tremendous pressures. In this post, I am covering the scenario of women in India and world.

1.      Gender Gap Report 2010 by World Economic Forum

The Gender Gap Report released recently showed that women across countries are way behind in economic participation and political empowerment. In 2010, India is ranked 112. In the India Gender Gap Review Report of 2009, India’s ranking was 114 out of 134 countries measured. In the Indian sub-continent Sri Lanka, in both the years was amongst the top 20 countries in the report. Nepal, Maldives and Bangladesh rankings are better than India.

This is despite the fact that India holds 4th position in the world for the number of years a female leader has held political power as head of government. Even presently, Indian President and National Head of ruling party Congress are women.

The reports indicate that there is a strong correlation between gender equality and level of competitiveness on the country. In the corporate world, enough emphasis is not being placed on brining in gender equality. If 50% of Indian population is unable to contribute effectively, India can give up its dream of becoming a powerful nation.

Click here to read the Gender Gap Report 2010 and India Gender Gap Review Report 2009.

2.      A global snapshot on The World’s Women – landmark UN report shows some improvement in the status of women, but still a long way to go Via The SheEO Blog)

Those of you interested in statistics and data will love this new UN report released this week in New York on the state of play for women around the globe.  It’s not a quick read – at 284 pages!!!! – but includes a comprehensive review of that women and employment, health, education and all things in between, along with a fantastic array of graphs and tables that illustrate perfectly why we must remain focused on gender equality, all over the word.  A snapshot of some of the report highlights include data showing:

  • In today’s world there are 57 million more women than men – largely due to longer life expectancies of women: in all regions women live longer than men
  • Women still comprise 52% of the labour market and over the past two decades women have entered various traditionally male-dominated occupations, however they are still rarely employed in jobs with status, power and authority. On average only 17% of parliamentary seats around the world are held by women, and remain significantly underrepresented on corporate boards and executive roles: of the 500 largest corporations in the world only 13 have a female CEO.
  • There is a persistent pay gap everywhere and while the gender pay gap is closing slowing in some countries, it has remained unchanged in others.
  • There is progress “albeit slow and uneven” in the literary status of women and men however women still make up two-thirds of the world’s 774 million adult illiterates – a proportion which is unchanged over the past 2 decades.  The good news is that there have been positive global trends in primary enrollment particularly in developing nations.  Secondary enrollments while on the increase, continue to lag behind primary education.

Click here to read the full article

3.      Wake Up: We Need to Fix the Business Case for Women in Leadership (Via The Glass Hammer)

Fifteen percent. That’s how many women make up executive committees of American’s top companies. In Europe it’s only 7%. And in Asia – only 3%. That’s what 20-First revealed in this year’s WOMENOMICS 101 Survey.

And while these are all more than… say… zero percent, it’s nowhere near the 30% critical mass so many female leaders have called for, nor the company-specific gender balance approach advocated for by 20-First’s Founder and CEO Avivah Wittenberg-Cox.

Click here to read more.

Conclusion

Gentlemen, women across the world need your help and support. To make India a powerful nation, Indian men will need to do their extra bit to ensure Indian women walk shoulder to shoulder with them, and not behind them. I request Indian men on this Karva Chuath to support their wife in her wish to gain economic independence, political empowerment and a healthy life.

Common Wealth Games Fraud

The Delhi Common Wealth Games (CWG) investigations by Central Vigilance Commission (CVC) are revealing irregularities and fraudulent practices adopted by the organization committee members. The estimated figure for misappropriation of funds is Rs 8000 crore (Rs 80,000 million). The investigations have recently commenced and the problems reported in the media are:

  • Purchase contracts signed with varying rates for the same product;
  • Prices over-inflated in some contracts;
  • Contracts given to relatives and friends;
  • Sub-standard products purchased;
  • Vendor payments made without confirming quality and delivery;
  • Payments made to non-existent vendors.

 Final investigation report is awaited; however preliminary findings indicate various wrongdoings. In my view, the organization committee members ignored the Prevention of Corruption Act and government procedures for contracts and tenders.  The results may show cases of fraudulent contracts and transactions, accepting bribes and contravention of procedures.

From the perspective of purchasing process, the following control issues are apparent:

  • Improper and inadequate vendor selection and evaluation procedures were followed.  
  • Conflict of interest was not disclosed while signing contracts with related parties.
  • Tenders were not given to bidders quoting lowest price of the product.
  • Vendors did not deliver the contracted quality and quantity as per the delivery schedule.
  • Vendors were not penalized for sub-standard quality or late delivery.
  • Vendor payments were not linked to delivery of products or completion of deliverables.
  • There was no segregation of duties. The same officials authorized the contract and approved payments.

 An independent evaluation of contracts by risk managers may have prevented misappropriation of funds. A periodic audit by government agencies could have highlighted these issues at an earlier stage.  As Comptroller and Auditor General (CAG) group is required to conduct periodic audits of all government expenses, it is surprising that these issues were not discovered earlier.

This clearly indicates  mis-utilization of public funds. Indian public is expecting an explanation from the government. The government’s commitment to reducing corruption will be determined by the actions it takes on the findings mentioned in the final report.

Let us wait and watch.

Establish a Governance Structure at Project Conceptualization Stage

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.

Celebration Time – 50 Posts Old

This is the 50th post on the blog. A big thank you to all my readers for the journey so far. This blog is still a baby and learning to walk on its own in the big-big blog world.

The journey was exciting with a lot of learning, anxiety and happy moments. Let me share the story with all of you.

I had always wanted to start a risk management blog. So finally I decided to take the plunge in March this year and opened this wordpress account. Then as usual suffered a bout of nerves and had all the doubts assail me. Being a risk manager, my list of ‘what can go wrong’ is generally longer than any other professional. The one thing which was not on the ‘what can go wrong list’ was that there was minimal probability of running out of writing material. The financial crises, corruption, frauds etc. can keep this blog going for at least a decade.

 In April, I gathered my courage and published the first post. Then I wondered who will read it, and whether it will get any response at all. Some hits showed me that people did read the article, but there were no comments, so didn’t know whether the readers liked it. Then I received the first comment, a critical analysis of the topic. I was over the moon, finally I had confirmation of a reader. A very big thank you to all the commentaters, their feedback keeps me going.

Meanwhile, I was doing research on other blogs and studying blog writing tips. These finally gave me the confidence to kick off the blog on a long-term basis. I started regularly writing from July 2010 and the response is encouraging. My posts were re-blogged by fellow risk management and ethics bloggers and this definitely boosted my confidence. I would like to thank them for the vote of confidence and appreciation given to my writing.

I think all bloggers have some apprehensions when they start. Mine was that all the blog advisors said keep the tone same and write the same message consistently. My challenge was that I have opposing viewpoints on each topic and can carry on an internal debate on any topic for a few hours at least if not days and years. Again, my writing varies according to the mood I am in, so how do I write in the same tone? I decided to plunge ahead by ignoring the advice. Simple, since I couldn’t figure out how to follow it, it was best to ignore it. I decided to be me, share my very essence of contradictory thinking. To my surprise my contradictory posts and views have been very well accepted and appreciated. Here is a list of the top 5:

  1. Establishing a Code of Business Ethics
  2. Insignificance of Ethics in Leadership
  3. Brand Building of Risk Management Department
  4. Management Lessons from India’s Freedom Struggle
  5. Mother Teresa- An Inspiration of Social Responsibility & Whistle-blowing – The Psychological Paradox

The first two topics are diametrically opposite.  The fifth position is shared by two topics which portray different human emotions – sacrifice and selfishness.  I think the world is open to accepting different aspects of thinking and a person’s personality, it is just that we are scared of being judged on displaying the same and get bracketed in one mode. I would encourage my fellow bloggers who have the same apprehension, to take the risk of doing so.

In September 2010, the views on the blog crossed 1200. In 20 days of October the views are over a 1000. Now I do not know whether this is good, bad or ugly for a three-month old risk management blog, since there is no comparative data available. Ignorance is bliss, I have decided to celebrate it with all my readers.

Once again, thank you all for reading my posts, taking the time out to discuss them and providing feedback. I look forward to your continued support.  Hope with time we build stronger relationships.

Sonia

World Economic Forum Global Risk Report 2010 Recap

The fifth edition of Global Risk Report 2010 of World Economic Forum  was published in January 2010. I read it again recently to assess whether the risks predicted in the beginning of the year, prevailed during the year. I must say that the predictions were true and the world faced the risks during the year. As the next report will be published in January 2011, it is worthwhile to read 2010 report to adopt them in the annual risk management strategy of organizations.

The report contains covers 36 risks listed under five categories – economic, geopolitical, environmental, societal and technological risks. The major risks identified in the 2010 report are:

1)      Global governance gaps

2)      Fiscal crises

3)      Chronic diseases

4)      Under-investment in infrastructure

5)      Further fall in asset prices

6)      Chinese growth slowing to <6%

The risk interconnectedness maps (RIMs) presented in the report depict inter-relationships and connections between the various risks. For example, transnational crime and corruption will impact and be affected by governance gap, global retrenchment, fiscal crises, asset price collapse.

The report emphasizes the need to have global governance structures to manage and mitigate global risks. The effectiveness of the risk mitigation plans will depend on the various countries leaders ability to drive long-term changes while reconciling country specific agendas. As seen in the recent past, financial crises in USA and Europe had an impact on the rest of the world.  This indicates that systematic risks have a global impact.

Afghanistan’s unstable political conditions impact the Indian sub-continent significantly and pose a threat to world security. The present situation has resulted from a long-term situation which was brewing for over a decade and was not dealt with effectively. This indicates that slow creeping risks have significant impact in the long run and should not be ignored.

Hence, in all categories of risks, governance structures and coöperation between countries is required to manage risk effectively.  

On analyzing the various risk charts given in the appendix, risk managers can draw a country risk matrix. Risk managers working in organizations can further drill down to determine the organization level risk impact at macro level. From macro level risk analysis a risk strategy for the company in the 2-5 year time frame can be drawn. The analysis will help organization decision makers to understand the global and local risk impact on their business from long-term perspective. This will enable organizations to secure their business in the long run.

I recommend risk managers to read the report and build in the aspects mentioned in the report in the organization’s risk management strategy.

Please share your ideas on how the information in this report can be used more effectively by countries and organizations for risk management. 

Celebrating Success of Human Spirit Against All Odds

Today, in India we are celebrating the festival of Dussehra. As per Hindu mythology, Dussehra is celebrated to signify victory of good over evil. The story is described in Ramayana. The main protagonist Prince Ram is considered an avatar of Lord Vishnu. His character is depicted as showing maturity, wisdom and sacrifice. Prince Ram, the eldest of four brothers, was exiled to the forest by his father for 14 years due to his step-mother’s desires to have her own son Prince Bharat ascend the throne. To keep his father’s honor, he declined his right to the throne and stayed in the forest with his wife Sita and younger brother Lakshman.  Princess Sita’s character depicts the traits of a loving and virtuous wife.

King Raavan is the villain in the story.  He was considered an extremely intelligent and talented man, with brainpower of 10 men. He however was egocentric, focused towards self-gratification and unprincipled. King Raavan, to seek revenge kidnaps Princess Sita through deception and harasses her to be one of his wives. Princess Sita refuses King Raavan’s offered luxuries of the palace and awaits her husband by living under a tree for 18 months.  Prince Ram to rescue his wife fought a battle with King Raavan. Dussehra is a celebration of his victory. In the evening effigies are burnt of King Raavan and his brothers to signify death of evil.

In the present day society we have turned somewhat pessimistic and think by being good we do not have much of a chance of living life successfully. The media are flooding us with information on all that is wrong with the world and it leaves us somewhat disheartened. To celebrate Dussehra, I am putting the three things which impressed me this week and signified the victory of human spirit against all odds.

1.       Chile Miners Rescue Operation

The world erupted in jubilation on seeing the 33 miners come out alive after being trapped in the mine for 70 days. It was the longest underground entrapment in human history. Luis Alberto Urzua, the shift foreman showed the world what leadership in crises is really about. He had kept his team alive for 17 days without any contact from the outside world. We will learn from him about how he got the miners to keep going on a single day’s food for 17 days, how he kept their hopes and commitment high and how he kept them united in adversity. His leadership was one from the heart; he nominated himself as the last person to be rescued. The story shows that human beings willpower and determination can survive all odds. Hats off to all the miners, they made their mark in history.

The rescue operation cost is estimated at $20 million. The Chile government showed that it cared for its people. The mine collapse was one of the worst disasters in the mining world. Proper operational risk management could have averted the disaster.

2.       CWG Games In Delhi

The Delhi CWG games started with a negative perception. The media (Indian and the world) lambasted the games organization committees for corruption, mis-management, and terrorist threats. Some countries leaders requested to stop the games, some players withdrew from the games due to perceived threat to life and the world watched the spectacle. All these were factually correct.

Indian government pulled up the concerned people, deputed more resources, revised the plans, and got ready for the games. The opening ceremony was spectacular. The games were concluded without any major hitch or disaster. All sports men and women, coaches, and organizers went back home safe and happy. Indian sports men and women showed their spirit and grit by winning 101 medals. They fought for the country’s pride and honor by fighting for the last gold medal and getting India second position in the country rankings. Not a mean feat considering the competition from England.

A British reporter after the games said that Indian media did the damage since it reported negatively regarding the situation. He said although it was very bold, but most reporters would not do the same in their own country. Chinese reporters called India a democratic mess. India is a flourishing democracy with freedom of speech granted to each citizen. I think Indian media did the right thing by stating facts. It enabled the country to do pro-active risk management and prevented any disaster from occurring.

3.      The Story of Arthur F. Schlobohm IV( via Ney York Times)

Many may not have heard this recent story of Arthur F. Schlobohm IV who is known as Ty to his friends.  Mr. Scholobohm a long time trader stumbled on a Ponzi scheme run by fund manager Trevor G. Cook. He did his research on Mr. Cook and his companies. He realized that the $ 4.4 billion fund being run in his home town Minneapolis by Mr. Cook was fraudulent. He turned informant for Federal Bureau of Investigation (FBI). For four months he helped FBI gather evidence. He himself attended various meetings of Mr. Cook while being wired by FBI with voice recorders and hidden cameras. With Mr. Schlobohm’s help, the Justice department was able to prosecute Mr. Cook. Mr. Cook pleaded guilty to mail and tax fraud last summer and was sentenced to 25 years in prison for orchestrating what ultimately became a $160 million swindle.

Mr. Schlobohm set an example to all the finance and risk management professionals by assisting the government in detecting the fraud. Read the full story here.

To me these stories show the resilience and strength of human spirit. If human beings plan to do the right thing, they are successful. These help me in restoring my confidence in the goodness of humanity. Hope they did they same for you.

Wishing all my readers a very Happy Dussehra.