Perfect the 5 “Hows” of Risk Management

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  • Decide and Deliver. Be clear at the end of every conversation as to what you have decided to do and then follow up with a conversation later that determines if you did what was agreed to.
  • Commit to a regular practice of fierce clarity and decision-based conversations. Make certain to create security in your environment that assures team members that difficult conversations are not a threat to their jobs, relationships, or compensation (unless there are other behavioral problems).

Change Your Perspective—

  • Change perspective about paying margin calls—understand that paying significant margins calls is the price of doing business and represents an accumulation of the last three to 12 months of activities. Seeing margin calls as more of a “periodic fee” for doing business instead of a one-time price tag creates some space to swallow the discomfort of writing checks with lots of zeroes.
  • Shift risk management team members from “advisory” to “decision-making.” One of the biggest enemies to progress is conversation and advice. Idea-mongering, mulling over data, forecasting possibilities is terrific for understanding, but terrible for execution. And reporting or summarizing when people can read and review for themselves wastes valuable and limited executives’ and advisors’ time that should be focused on strategizing, decision-making, and executing. Use conversation wisely by doing preparatory research and setting goals.
  • Measure success by applying “insurance” and “capacity to respond metrics as opposed to “gambling” win/lose metrics. Sometimes these metrics are challenging to document and discover. Have conversations that clearly articulate WHY we are establishing a position. And do not look back, bemoaning what we could have or should have done. That’s like being upset about the person who just won $1000 using the slot machine you vacated.

Change Your Culture—

  • Change perfection cultures to perfecting cultures. Focus on building infrastructure that allows processes, systems, planning, long-term strategies and organizational role clarity that facilitate and leverage timely decision-making and responsiveness to opportunity.
  • Eliminate administrative and cultural practices that inhibit progress. Fear, shame, second-guessing, bringing up the past, regret, or people-pleasing are the tombstones marking organizational dysfunction and paralysis.
  • Create knowledge, expertise, and empowerment cultures that focus on learning and building those processes and systems that leverage your capacity to respond to opportunity. This means creating decision-making metrics in advance and then giving advisors and executors freedom to operate and flexibility.
  • Create cultures that aggressively invite advisors and employees to experiment, challenge, solve problems, and grow.

Change Your Practice—

  • Protect your operations by establishing margin management plans and educating and building relationships with lenders who can respond with some flexibility because they see the value of dynamic risk management decision-making practices.
  • Expose your decision making process by establishing marketing goals (ROI or % of production), assessing your loan covenants, and determining your capacity to access lending lines of credit and meet margin calls.
  • Build relationships with banks and bankers who understand your operational needs, and integrate them as part of your advisory team to develop and evaluate risk management strategies and flexible lines of credit to respond to opportunities. Our most effective client relationships involve semi-annual assessments and show and tell sessions as part of a larger team—bankers, CFO’s, CEO’s, and risk managers.

Change the Game—

If you change nothing else, focus your risk management conversations on four tasks:

  • Address ONLY relevant information to decision-making.
  • Co-create action-oriented decisions or strategy and document it.
  • Embrace transparency: If you choose not to act on a recommendation, make transparent why and determine a contingency plan.
  • Make certain the next conversation ensures execution occurred.

The Bottom Line—

As risk management partners, we have a vested interest in achieving the value that we know we can provide if we co-create knowledge and build decisions together. Client/advisor expertise and capacity to co-create knowledge and solutions must drive decisions in this overwhelming sea of input, opinion, and historical data. 

If organizations have the capacity and desire to respond, adapt, and execute, and if activities are aligned with long-term goals, then it is very likely advisory relationships will be satisfactory and producers will fully participate in those opportunities that differentiate sustaining operations from capacity building ones.