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Risk Management Starts at the Top

An AmericanLaundryNews.com Exclusive

CHICAGO — The perception of playing favorites at any level in an organization, whether true or not, must be avoided at all times. Such a perception can have a negative impact on the work force.
I used to have a four-hour commute with my boss when I worked in Washington. I had the ear of the boss more than anyone, and this created a perception that I was a favorite, received more support, etc. While this was not true, it caused long-lasting damage to the organization.
Word will always get out when someone does well, but it also gets out when organizations tend to protect, award without merit, and promote internally or establish positions without making the offer to others.
All should be fair. Management needs to sit down and analyze how any move is going to look to others in the organization and what impact it will have on the entire organization, not just one element.
For example, let’s say that top management provides great support to one element but fails to provide support to others. This may relate to travel, expenses, entertainment, administrative support, etc. These actions will tend to produce morale issues that usually cannot be repaired. When management does realize that such perceptions exist, it’s critical that it projects the reality of the situation.
To avoid a myriad of problems, including perception issues, management must define risk and have a clear chain of command. You cannot have managers recommending increased-risk services while the degree of board- and executive-level support remains unclear.
Too often, organizations scramble to generate new products, filling the tub until it overflows, without getting feedback from those who would be required to sell and service the product and, more importantly, without understanding the customer base and its expectations.
This situation could, if not examined properly, adversely affect both customer expectations and customer service overall, and takes time away from managing core values. In the words of my Marine drill instructor, everything and every component is blown to the winds, causing major confusion.
A new item may look good, smell good, and even have some impact, in theory. But if the effort to jump-start an existing process is done without thorough examination, it may generate sales initiatives that take away from core objectives. This is especially true when the performance of selling the initiative impacts the financial well-being of those who believe they are being forced to sell outside their comfort level. It’s like a laundry equipment organization entering the automobile industry — not impossible, but highly improbable.
Instead of allowing this condition to perpetuate, an independent audit by an unbiased group and other stakeholders is needed to find clarity on the issues and determine how best to approach organizational risk. Auditors, in particular, should elevate their role in the risk-management process by implementing a higher-level audit that supports management taking on a new risk-associated initiative.
A risk consists of allocating capital in a measured way that allows for a return beyond the cost of that capital. Any risk must be understood, assessed, accepted, and aligned with the company’s risk tolerance and goals. Process owners must develop strategies for managing and auditing these processes according to company risk practices and financial objectives.
Without this alignment, process owners don’t know how much risk-taking is acceptable, and auditors have to second-guess management’s objectives and provide control feedback in a vacuum. Internal auditing needs to explain to top management that processes cannot be performed successfully without management support and guidance on risk priorities.
Ultimately, management is responsible for risk-taking geared toward meeting organizational objectives and, in turn, allocates authority to take risk. Executives execute this via a hierarchy of capital or risk delegation. Most companies begin to lose alignment along this hierarchy, if one ever existed. To ensure coordination, management needs to direct risk-taking activities in accordance with the company’s financial objectives.
For you managers who are caught up in bias-type organizations, you need to realize that, in most cases, top management really doesn’t understand how its decisions affect others.
I heard a great quote recently: “Top managers usually don’t have enough expertise to ask the right questions.” This is when managers need to speak out without fear of retribution. Managers and other employees need to explain how the depth and breadth of their experience gives them the right to question top management.
When you do, mention your record of reliability and freedom from distractions. You must provide employer-centric reasons for your concerns to be understood and accepted.
 

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