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How Culture Drives Risk Management

How Culture Drives Risk Management

by Starling Insights

Starling Insights Editorial Board

Observations

At the Central Bank of Nigeria's Second National Risk Management Conference last month, Joshua Rosenberg, who serves as the Chief Risk Officer of the NY Fed, spoke on how companies can achieve their risk management goals in the face of unforeseen circumstances.

While risk management can protect value by reducing the frequency and magnitude of negative events, Rosenberg also believes that effective risk management should create value by giving companies the tools to work more effectively.

Many see risk management as the domain of specialists, but in reality, it is the responsibility of everyone in an organization. "[M]ost of the risk management that occurs in an organization will be done by people who don't have the word 'risk' in their job title," Rosenberg said.

Effective risk management does not entail creating contingency plans for every possible event. As it is said, "things that have never happened before happen all the time," and it is impossible to plan for everything. Instead, risk management is about adapting and overcoming unforeseen circumstances.

If organizations wish to see the benefits of risk management, they must focus as much on organizational culture as they do on strategy and structure. "Practically speaking, we have policies, procedures, and rules to help us make decisions," Rosenberg said. "But, much of the time, decisions aren't clear, and it is organizational culture that shapes the tradeoffs that we make and the actions we take."

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