Risk Appetite – managing feast and famine
I was able to attend the RANT forum a few nights ago, and watch an excellent presentation by Sarb Sembhi. However, and this is no insult to the speakers at the RANT forums (being one myself) the most valuable part of the evening is the socialising with colleagues and peers before and after.
I was talking to a couple of people who were recounting the challenges they face with their leadership regarding their risk management activities. I paraphrase greatly, but the gist of the issue was
Highlighting risks to them is all well and good, but then suddenly they tell us that another activity needs to be escalated up the risk matrix, or that there is a hot topic that they want pushed to the top of the risks list so it gets more attention. How are we supposed to manage a risk programme with any credibility when risks get artificially prioritised or de prioritised according to the mood of management?
We came to the conclusion that the risk appetite of the management team in question was a very flexible and fluid thing that changed quite frequently, and seemed entirely disconnected from the risk management activities being carried out.
This is a complex issue, and not one that can be solved in a single blog post, but there are a few guidelines and concepts that may be pertinent to heading off this kind of behaviour.
- Listen to them. On the whole an organisations management know what activities and changes will affect the business more than you. If they are highlighting something it is not to mess you around but because they are genuinely concerned about it. Look at your risk programme; does it squarely address the risks they are highlighting? Are they new risks, old risks, or poorly understood risks? Perhaps you have already found them and they need to be reviewed under the new light cast on it by management.
- Educate them. How much does your management team actually understand about the risk work you are doing? Do they really know what the scope of your remit is, how you go about finding risks, and more importantly how you measure them? ISO27005 is often described as an arbitary way of measuring risk, but it does a good job of explaining how you can approach and understand it. If you use that standard in your programme, make sure they understand how you measure them, and get their buy in to the approach. This way, when you disagree with their analysis of a “new” risk you can explain in agreed terms why.
- Use your governance structure. Your management team should only be looking at risks that are escalated to them, that is to say residual risks that are still considered as “high” (or whatever parlance you use). Every other risk below that should be managed and dealt with by the governance structure in place. Certain lower risks can be mitigated (managed, avoided or transferred) by people closer to that risk; a developer could change a portion of code, a project manager could remove or add contractors or a team member could go through more awareness training. Changing the course of a project or increasing the staffing costs by 50% is beyond their remit and they are therefore not able (or authorised) to treat them effectively; these risks get passed up your governance chain until they reach a point at which they can be dealt with. At the very top I would estimate they should be seeing no more than 0.1% of total risks escalated to them. Any more and it may be that the structure underneath is not doing their job.
- Understand their appetite. One of the standard ISO 27005 risk acceptance approaches provides a matrices for what is acceptable and what isn’t. It is provided as an example only, and should not be used out of the box without considering the risk appetite of your organisation. If you are a risk averse organisation, the yellow and red band move down to the lower left, thereby meaning more “red” risks will need to be addressed. A risk taking organisation will move the green and yellow band up, thereby ensuring fewer “red” risks will need to be addressed. The risk profile of an organisation is something that is rarely understood by those that measure risk, and therein lies the problem. Only if the risk profile is drawn up, understood (including the approach to measure the risks in the first place) and signed off can risks be identified, “measured” and addressed in a way that meets the organisations business objectives.
- Accept that the appetite changes. if you review your risks annually (as a bare minimum) that is also a cue to review the risk appetite. If incidents throughout the year affect the business for the good or bad, that is a cue to review the risk appetite. If the organisation management suddenly think something is a big risk and needs to be addressed, that is a cue to review the risk appetite. And when I say review, I mean with the management, and not just in isolation.
There… simple! Well, not at all when you face these challenges every day, but if you can start that dialogue with your management and start to understand the business as they understand it you will be a long way towards heading off the “the sky is falling, fix it now!” response to risks.