The second approach — which complements the first — is to involve risk management earlier. The hope is that a skeptical voice in the planning session can influence the shape of a plan. Capital One Financial Corp. in McLean, Virginia, has a method for doing this, according to chief enterprise risk officer Laura Olle. In addition to a review of annual business plans, Capital One involves risk managers in all major decisions. The risk professionals work with planners to think through a structured set of questions when developing a plan. If a unit is thinking about expanding to Germany, for instance, does the company need to buy new technology? What are the privacy laws in that country? Is the company prepared to comply? "Our goal is to help the business understand what things could go wrong before they make the bet," says Scott Davenport, vice president of enterprise risk management.
This can happen without a formal ERM program. Ellen Vinck, vice president of risk management at U.S. Marine Repair Inc., which is based in Norfolk, Virginia, says she has participated in planning meetings for at least 15 years, something she admits is uncommon among risk managers. "Truthfully, I think this is what every risk manager should be doing," she says. Vinck provides an example of her role: during one meeting, someone proposed expanding repair operations to bridge work. Vinck pointed out that the risks involved in working under a 200-foot-high bridge aren't the same as those of working in a shipyard, and that the company's insurance wouldn't cover such risks. "If a risk manager hadn't been there, we might have gone ahead and created a huge exposure for the company," she says.
The danger in all this is that companies could cultivate a risk-averse culture — one in which good ideas get shot down by risk managers. It shouldn't, according to the advocates of better integration of risk and planning. "Our company is in the business of taking risks, but taking risks in an understood, assessed, and managed way," says Davenport. Arguably, the effort to link risk to strategy is a way of returning companies to their roots. For a young, small company, there is no division between planning and doing — they are typically done by the same people. "A good entrepreneur always thinks about what will go wrong," says Davenport. By closing the gap between strategy and execution, companies may start to see more things go right.
Don Durfee is research editor at CFO.
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