Three things golf can teach you about risk management

Three things golf can teach you about risk management

How can lessons from golf shape your approach to risk management? I talk through three of them – risk, technology and complacency.

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Director, Technology Risk Consulting

KPMG in the UK

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Reduce risk handicap

I love golf and like many people, I find it to be a cruel sport. Just when I think I’ve got it measured — it pulls the rug out from under my feet and I have to re-evaluate everything I know about golf. Risk is the same — you can never conquer it — you can only learn to read the conditions and manage your game to achieve the best outcomes.

Even if you know nothing about the game, I think there are some things about golf that are universal and can help re-think how we manage risk.

There is a trade-off between risk and return

When you’re standing at the tee, you have options. Do you:

  • Drive over the water hazard, which you can probably make in one shot. However, if you don’t make it you’ll be wet, have to take the shot again and suffer a penalty; or
  • Take two shots to go around it?

Of course, the answer is ‘it depends’. It depends on your skill and likelihood of hitting the shot, whether you are at the beginning of the round and can afford to miss a few shots, or at the crucial end stages of the game where every swing is critical. Put simply — it depends on your risk appetite. Your appetite allows you to navigate that narrow pathway between risks that are threats and those that are opportunities. A clearly defined risk appetite communicated and understood throughout the business empowers you and your team to make optimal decisions. 

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Technology is not the solution

Technology is merely a tool that enhances performance. You can have the best clubs and balls money can buy and an app that gives precise GPS-calculated distances, and real time analysis of your swing, but if you don’t have a solid drive and consistent putting performance on the green, all that technology is wasted. It’s the same with governance risk, compliance technology and risk analytics. You can have sophisticated business intelligence software running daily, reporting on a range of indicators, but if you don’t have a framework to identify risk areas as they arise and a process for review and escalate, then those tools are redundant. 

The more golfers practice using technology the better they get and their handicaps come down. In addition, if things aren’t working well you can always seek assistance from a professional to help iron out swing issues. Similarly the more you think about risk, use data, practice scenarios and obtain external perspectives, the more informed your decisions will be.  

Complacency is your worst enemy

Just because you’ve hit a shot a thousand times before, it doesn’t mean you’ll make it onto the green this time. Your handicap and your past performance are no guarantee of how you’re going to perform. You need to be continually aware of and focused on every element of your game and the environment around you.

In risk management, complacency can be fatal. If boards think they already understand all the risks and do not encourage a culture of openness, escalation and action on issues as they arise, it promotes a weak risk culture. 

This was at the heart of many of the issues in the global financial crisis - where boards ignored a culture of excessive risk taking due to the high level of profits being earned. Emphasising risk culture addresses the impact an organisation’s culture can have on the prevention of unacceptable risks and the identification of emerging risks. 

Like every shot on a golf course, we need to support a culture that encourages staff to report it when they make a mistake or something goes wrong and critically assess how it can be done better next time. Only through this focus on continual improvement can we re-think risk to minimise organisational threats and lower our handicaps.

 

Based on the original article featured within KPMG's GRC Today, November 2016

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