The lighthouse of risk management

Every once in a while we consider an area of management as critical to success.  However, the reality is all areas of management are just as critical to each other.

Risk management does however play its part in one key way – it is the lighthouse for running a business.  So what do I mean by this?

Essentially, risk management’s role is to show the business the good and the bad things out there on the horizon, either internally generated or externally generated.  This is not always the most glamorous of positions, and can sometimes make you downright unliked.  But, that is why risk management is such an important role in the business landscape.

Returning to the metaphor of the lighthouse, if one does not maintain the lighthouse appropriately, you will find that risk management will be ineffective.  And just like any lighthouse, if people chose to ignore the light being projected, or even worse, elect to travel in a place with the security of the lighthouse, then the complexity of compliance with the law, operational risks, strategic risks, reputational risks, technology risks and traditional banking risks (credit, non-traded, market) could potentially cause significant damage to the business.

So, now lets lay across the scope of the lighthouse the world of innovation.  Many people would now state that lighthouses are no longer needed because someone invented deep sea mapping and GPS systems.  However, what they neglect to realise here is this is the innovation of the lighthouse, to then help the business to manage the new ships or vessels they are innovating.  What amazes me, moving away from the metaphor slightly, is that some people think that risk management means you cannot innovate.  If that were true, then how do people successfully innovate and comply with the laws and risks surrounding innovation?  Because, they utilise all the experts they can to make the best solution.  These people, utilise the lighthouse to assist them, and then generate an even better outcome.

So, what does the lighthouse bring to the table for the business to continue to rely on it?  The risk management framework is all about assisting the business to understand the risks for the business as usual or for new initiatives.  The framework is essentially a process of working through what are the potential risks and what controls need to be develop to manage these risks effectively.  Risk management utilise the subject matter experts and the broad understanding of potential failures, through research (internally and externally) to work through these risks effectively with the business.

There is no golden rule that states you must use the lighthouse, or even pay attention to it, but history has shown that the many boats that did not utilise the lighthouse, well, they ended up somewhere at the bottom of the ocean.


Scott North has extensive experience in enterprise risk management, internal audit, operational risk and compliance, risk strategy, scenario planning, technology risk, technology business analysis, systems design, financial accounting, and management accounting. Scott is a Fellow of the Australian Institute of Chartered Accountants with a Masters Degree from the University of Melbourne in Business and Information Technology. Scott is also a Fellow of the University of Melbourne.

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