Ferma Blog 3: The link between management systems & risk
23rd September 2011
Ferma Blog 3: The link between management systems & risk
Björn Müller, Managing Director of Lloyd’s Register Quality Assurance Germany & Switzerland
Interviewer: Please explain the link between organisations’ management system(s) and risk?
Björn Müller: The management system is the professional documentation of all operational processes. If a company decides to go into whatever type of business or continuing its business this is always associated with risks. For example, let’s take the example of product liability; this stems from the operational processes and all the operational processes are dealt within the management system. Another topic is – for example – the D&O (Directors and Officers) Coverage; large corporations require this for their executives and the insurers are looking for a clear insight into how the company is managed because a failure in management could lead to a D&O claim.
A management system is a system which most of the bigger industrial companies have, where all these operational processes are professionally dealt with and therefore the big opportunity for industry to add risk monitoring part to their process description and to their process landscape in order to get kind of a online risk scanner, almost like a virus scanner, an online scanner for the risk profile of the company if you like. This will lead into the situation that some Risk Managers may only see at the moment for potentially once per year – the risk. Risk Managers get a snapshot view on risks in their company by asking the risk owners once per year with whatever technique available. But this is only a snapshot; what they don’t have is a view on the volatility of the operational risk profile in the company and if you add the risk monitoring aspect into the management systems documented processes this can facilitate the risk profile, the setting up of the risk profile of the company and therefore lead into a way more focused risk strategy for the company.
Questions that need to be addressed include “how much risk does the company want to keep in their own balance sheet?”, “how much risk do they want move out of the balance sheet?”, “what is the transfer of risk or – in other words – insurance and how to deal with it?” Therefore, linking the management system to risk could help companies a lot.