This article summarises the key business questions that risk diagnostics and risk benchmarking answer. This will allow organisations to decide if either technique would be useful to them.
We see mentions of risk diagnostics and risk benchmarking and our typical questions are along the lines of: Why would we want to do that? and/or Is that something we should be doing?
However, it’s difficult to know whether they are right for our organisation, what benefits they will give or, indeed, which one should we go for. From my experience, the answers to the questions above are: It depends on your situation and what you want to achieve.
I appreciate that that isn’t the most helpful answer, so the rest of this article is aimed helping you decide if either risk diagnostics or risk benchmarking are right for your organisation and in what circumstances. It does that by summarising the key business questions that each technique addresses.
Risk diagnostics provides organisations with a view or their relative strengths and weaknesses. In doing so, it typically highlights areas where improvement is needed to get up to a ‘reasonable level. It can help organisations focus their performance improvement effort.
Typically, risk diagnostics can be used to answer the following business questions:
- How good is our current performance in a range or relevant areas?
- Where are the gaps in our current performance?
- Which areas have the most influence on overall risk?
- How good is our performance in those key areas?
- How can we understand what our organisational risk culture is?
- Which areas offer the greatest potential for improvement?
- Where should we focus our performance improvement efforts?
- What changes to overall risk level will we get from making changes?
- Which interventions offer the best return on investment?
As such, risk diagnostics is useful if you suspect that your organisation has problem areas that need to be identified and improved.
The most useful diagnostics are those that focus on the areas that contribute most to managing risk such as the Aon risk maturity index(1) and the Influence Network(2).
Risk benchmarking allows organisations to compare and measure their risk management approach against either national / international best practice (including that of competitors) or national / international risk management standards.
The key business questions addressed by benchmarking include:
- How does our organisation compare with best practice organisations?
- How does our organisation compare against a recognised national / international standard?
- How does our organisation compare to a range of similar organisations?
- What is the risk maturity of our organisation?
Risk benchmarking is most useful to organisations who want to compare themselves with peers, best practice or national international standards. This will either provide reassurance or identify areas for improvement.
The most useful benchmarks to compare against are those that contain data from a range of other organisations. Examples include the risk benchmarking club(3) provided by the Chartered Institute of Public Finance for public sector organisations in the UK.
Free download of our risk diagnostic and benchmarking tool
To illustrate the possibilities, I have made a version of our risk diagnostic and benchmarking tool available for free download so that you can identify the gaps in your organisation and benchmark against best practice.
The version available for download is presented allows organisations to:
- Run a risk diagnostic by comparing your current ‘state of play’ against 39 key factors that have been shown to influence risk
- Benchmark yourselves against the best practice performance obtained in the construction of London 2012
- Aon: Aon Risk maturity Index, http://www.aon.com/rmi/
- Mike Webster: How to assess what factors really influence risk in your organisation, http://mpwrandr.co.uk/how-to-assess-what-factors-influence-risk/
- Alarm CIPFA: Risk Management Benchmarking, http://www.alarm-uk.org/member-services/benchmarking
Dr Mike Webster specialises in risk and regulation, and is a chartered engineer with over 30 years’ experience. He has led risk and regulatory projects in the UK, Europe, Far East and US, and has acted as an expert witness in the UK.
If you would like free access to Mike’s report Do you understand what factors influence risk in your organisation? and the accompanying Organisational Risk Benchmarking Tool click here.
If you would like to discuss this further, drop Mike a line at email@example.com or give him a call on +44 (0) 7969 957471.