Risk, Internal Audit, and Parachutes

Norman Marks, CRMA, CPA, is a vice president for SAP and has been a chief audit executive and chief risk officer at major global corporations for more than 20 years.

 

Have a look at the picture of a soldier having his parachute inspected. Before he jumps, it is critical that he understands and is ready to handle all likely events and situations — the uncertainties or risks he might face. It is also critical that all of his equipment functions exactly as he needs it.

Business leaders who are about to jump into uncertain business conditions need professionals who can help them understand and be prepared for what might happen, who will improve the likelihood of favorable outcomes. They also need assurance that all their equipment — business processes, information, people and other resources — will be up to the task.

It’s not enough for the soldier to have a map for just the area where he expects to land: a field clear of any animals, water, and other hazards. He needs to be prepared if the wind takes him over a lake or forest. The soldier must be agile and flexible in his thinking, preparation, and equipment so he can handle most scenarios and take advantage of favorable conditions. He also needs to be alert to his situation: where the weather conditions are taking him and where he might be landing.

This is where risk and audit professionals come in. They help ensure that business leaders understand the risks and uncertainties, have sufficient business insight and intelligence, and are backed up by solid organizations, processes, and people.

A piece I read this week really illustrates the fact that business leaders in 2012 face more turbulent weather (sorry, business) conditions than ever before.

A great magazine for all of us, everybody who wants to exercise their mind and imagination, is Fast Company. I have been a subscriber for 15 years (since its launch) and there’s something in almost every issue that I find interesting and relevant.

In a January article on Generation Flux, the focus is on how today’s working force needs to be able to adapt to change. In the process, the article has some magic words:

  • The future of business is pure chaos.
  • The pace of change in our economy and our culture is accelerating — -fueled by global adoption of social, mobile, and other new technologies — and our visibility about the future is declining. From the rise of Facebook to the fall of Blockbuster, from the downgrading of U.S. government debt to the resurgence of Brazil, predicting what will happen next has gotten exponentially harder. Uncertainty has taken hold in boardrooms and cubicles, as executives and workers (employed and unemployed) struggle with core questions: Which competitive advantages have staying power? What skills matter most? How can you weigh risk and opportunity when the fundamentals of your business may change overnight?
  • Just five years ago, three companies controlled 64% of the smartphone market: Nokia, Research in Motion, and Motorola. Today, two different companies are at the top of the industry: Samsung and Apple. 
  • Any business that ignores these transformations does so at its own peril. Despite recession, currency crises, and tremors of financial instability, the pace of disruption is roaring ahead. The frictionless spread of information and the expansion of personal, corporate, and global networks have plenty of room to run. And here's the conundrum: When businesspeople search for the right forecast — the road map and model that will define the next era — no credible long-term picture emerges. There is one certainty, however. The next decade or two will be defined more by fluidity than by any new, settled paradigm; if there is a pattern to all this, it is that there is no pattern. The most valuable insight is that we are, in a critical sense, in a time of chaos.
  • This new economy currently revolves around social and mobile, but those may be only the latest manifestations of a global, connected world careening ahead at great velocity.
  • Chaotic disruption is rampant, not simply from the likes of Apple, Facebook, and Google. No one predicted that General Motors would go bankrupt — and come back from the abyss with greater momentum than Toyota.
  • "Business-model innovation is constant in this economy," she says. "You start with a vision of a platform. For a while, you think there's a line of sight, and then it's gone. There's suddenly a new angle."
  • Within GE, she says, "our traditional teams are too slow. We're not innovating fast enough. We need to systematize change."
  • "The business community focuses on managing uncertainty," says Dev Patnaik, cofounder and CEO of strategy firm Jump Associates, which has advised GE, Target, and PepsiCo, among others. "That's actually a bit of a canard." The true challenge lies elsewhere, he explains: "In an increasingly turbulent and interconnected world, ambiguity is rising to unprecedented levels. That's something our current systems can't handle.
  • When the past has been blown away by new technology, by the ubiquitous and always-on global hypernetwork, beloved past practices may well be useless.
  • This is the moment for an explosion of opportunity, there for the taking by those prepared to embrace the change. 

Questions for you:

Are the risk and assurance professionals in your organization inspecting the parachutes? Are they helping ensure that leaders of the business understand the risks, are prepared to handle them — even if blown of course — and receive the information to appreciate their situation? (That information must be reliable, current, timely, and useful.)

Are the organization’s business processes, organization, technology, and people stuck in a rut, or do they have the agility to cope with change at a moment’s notice?

 

Posted on Feb 23, 2012 by Norman Marks

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