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Smart Risk Management: A Guide to Identifying and Calibrating Business Risks

ISBN: 978-1-940235-33-2
144 pages
May 2017
Smart Risk Management: A Guide to Identifying and Calibrating Business Risks (1940235332) cover image


Management accountants must be able to define the payoffs from their organisation's risk taking, as well as identify, understand, and reduce the negative effects of everyday business risks. This book defines organisational risk taking and outlines a formal process to handle risk effectively.

The book details six steps for sound risk management:

  • Defining risk
  • Examining your attitude toward risk
  • Analysing your organisation's ability to handle risk
  • Minimising a risk's exposure or downside
  • Recovering quickly from a risk's negative impacts
  • Expanding your knowledge so you can accept more risk with confidence

Written for management accountants, Smart Risk Management analyses your position in the middle of the organisation-ensuring both that it does not take risks whose costs it cannot afford and that it takes enough risks to stay competitive in the evolving marketplace.

Having adequate insurance coverage is only one small piece of risk management, as this book explains. With ample examples and case studies, as well as 50 hands-on risk tools, Smart Risk Management will enhance your understanding of strategic, operational, and innovation risk and increase your value to your organisation.

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Table of Contents

Introduction xiii

The Ultimate Risk Taker xiii

Exercise: What Is Your Risk IQ? xiv

Chapter 1 What Risk Management Is and Is Not 1

Getting Into the Risk Mentality 1

Exercise: Your Risk 1

No Insurance Selling Allowed 1

Risk Is Something CFOs Often Ignore 2

Anything Can Go Wrong 2

Process for Implementing an Eective Risk Management Program 2

Afford the Cost 2

Analysis of Google’s Risk 3

Relationship of Risk and Risk Taking 4

Innovation and Risk Management 4

Update the Culture 5

Understanding the Innovative and Risk-Taking Organisation 5

Survival Creates Infinite Sources of Risk 6

Summary: Risk Is Ordinary and Expected 6

Chapter 2 The Two Views of Risk 7

Duality of Risk 7

The 34,000 -Foot View 7

Exercise: Questions to Gauge Your Risk Tolerance 8

The 100-Yard View 8

Objective Versus Subjective Risk 9

Personal Risk Spectrum Tool 9

This Spectrum in My Life 11

Individual Risk Taking 11

Summary: Everyone Sees Risk Di erently 12

Chapter 3 Your Firm’s Risk Management Plan 13

Five Stages of Crisis Management 13

Your Risk Management Program 13

Fraud and Risk Management 14

Risk Awareness Prevents Fraud 14

Profits and Risk Management 15

Risk of Financial Loss 15

On-Spot Information Gives Rise to Profit Potential 15

The Risk Champion and Risk Team 16

Your Business Plan Risk 16

Strategic Risk 17

Operational Risk 18

Innovation Risk 19

Practical Solutions for Managing Business Model Risk 20

10½ Rules for Successful Business Risk Taking 20

Summary: Risk Requires a Proactive Plan 21

Chapter 4 Step One—Define Risk 23

Exercise: Defining Risk 23

Taking the First Step 24

What You Will Discover in Step 1 24

Why Defining Risk Is Necessary 25

Practical Solutions for Making People Aware That Risk Exists 25

Case Study Analysis of a Bank’s Evolving Risk Appetite 25

Insurance’s Inadequacy in Risk Management 26

Uninsurable E-Commerce Risk 26

Uninsurable Risk of Doing Business Across the Globe 27

Fostering Risk Awareness Case Studies 27

Analysis of a Financial Company’s Lack of Risk Awareness 27

Risk Awareness Tool 28

Summary: Importance of Step 1 29

Chapter 5 Step Two—Examine Attitudes Toward Risks 31

Exercise: Determine Your Risk Tolerance 31

The Second Step 32

Personal Risks 33

The Uncertainty Domino 33

Motivation Behind Avoiding Risk 34

Lesson of Step 2 34

Your Firm’s Specific Definition of Risk 34

Exercise: Taking a Risk 35

The Mind-Set of the Risk Taking Entrepreneur 36

The Mind-Set of the Risk Averse Person36

Back to Us 36

Case Study 36

Analysis of Royal Bank of Canada Revisited Risk Definition 36

A 10½ Step Plan to Build Your Self-Confidence for Risking 37

10½ Rules of Creative Risk Taking 37

Exercise: Who Is Running the Train? 38

Summary: Importance of Step 2 39

Chapter 6 Step Three—Analyse the Firm’s Ability to Handle Risk 41

Case Study 41

Analysis of Amazon’s Ability to Take Risks 41

Case Studies to Learn From 42

Exercise: Risk Analysis 42

Risk of Weak Accountability 44

Exercise: Accountability Self-Assessment 44

The Source of All Business Risks 46

Risk’s Two Faces 48

Accounting Sits in the Middle 49

The Cultural Aspect of Risk Taking and Risk Management 49

Your Culture Mosaic 50

Visible Clues About Risk in Your Culture’s Norms 50

Morale Is Vital in Risk Awareness 51

Culture Must Never Be Downplayed 51

Case Study 52

Analysis of Culture and Risk 52

Risk Analysis Tools 52

Tools of Risk Identification 52

Tool for Breaking Down a Risk Into Manageable Actions 54

Exercise: What Would You Need? 55

Exercise: Givens, Negotiables, and Controllables 55

In Essence 56

A Culture That Balances Risk Taking and Risk Exposure 56

The Point 57

How to Generate a Balanced Risk Taking Culture 57

Culture’s Impact on Risk Taking 57

Risk Inherent in Your Culture 58

Walk in My Shoes 58

Summary: Importance of Step 3 59

Chapter 7 Step Four—Minimise the Risk Exposure 61

Risk Mitigation Tools 61

Exercise: Risk Strategy Grid 61

Proactive Attitudes 63

Importance of Step 4 64

Balanced Risk Taking Requires Employees Thinking for Themselves 65

Tool to Perform an Authority and Responsibility Analysis 66

Tool to Analyse the Causes of Exposure 68

The Real Risk 70

Exercise: Finding the Root Cause 71

Tool for Isolating the Optimal Solutions 71

Summary: Importance of Step 4 73

Chapter 8 Step Five—Recover From the Negative Results 75

Risk Recovery Tools 76

Tool for Pitfall Planning 76

Exercise: Risk Analysis 77

Contingency Funds in Risk Management 77

Tool for Fostering a Lessons Learned Attitude 78

Exercise: Lessons Learned 78

The Risk Audit 78

Tool for Continuous Learning 80

Case Study 81

Analysis of Mega-Retailer’s Growing Risk 81

CEO Lessons Learned 81

Summary: The Importance of Step 5 82

Chapter 9 Step Five½—Commit to Taking Action 83

The (Never Completed) Last Step 83

Action Plan: Tool for Planning for Risks 84

Tool for Action Plan Reporting and Accountability 86

Summary: The Importance of Step 5½ 88

Chapter 10 Risk Management and the Management Accountant 89

The Demand for Our Risk Awareness 89

Inherent Risk 89

Control Risk 90

Assertion 90

Detection Risk 90

Risk and Path of Least Resistance 90

Where Auditors Need to Look 91

Ways to Alter Employee’s Path of Least Resistance 92

Chapter 11 The Wide World of Risks 93

Risk in Weather 93

Risk in Geopolitics 93

Risk From People Resources 94

Risk From Fraud and Employee Abuses 94

Warning Signs of Situations at Risk for Unethical Behaviours 95

Risk in Your Static Rewards 95

Risk in Employment Compliance 96

Risk in the Technology Dependent Age 96

Risk in Information Security 96

E-Commerce Risk 97

Risk of Sabotage 97

Risk to Personal Data 99

Risk in E-Mail 99

Risk in Internet Privacy 99

Risk of Internet Rumours 100

Summary: The Importance of These Risks 101

Appendix A Tool for Culture Risk Assessment 103

Pressure Point No1: The Growth Factor 103

Pressure Point No2: The Corporate Culture 103

Pressure Point No3: The Management of Information 103

Appendix B Ethics Focus: Business and Industry 105

Ethics Overview 105

Key Ethical Dilemmas 105

Glossary of Controllership and Financial Management Terms 107

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Author Information

Ron Rael, CPA, CGMA, is a thought leader for the CPA profession on leadership and CFO/Controllership topics. He is the CEO of the High Road Institute, a leadership development organization. Ron has authored content on topics such as professionalism, customer service, budgeting, accountability, governance, risk management, and strategic planning. He has coached more than 10,000 accounting professionals in organizations and leadership teams throughout the United States and Canada.

Ron’s industry experience comes from working in two large corporations, as well as from leading accounting teams in numerous closely held businesses.

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