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Interview with Author Gregory Monahan
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Authorline catches up with Gregory Monahan, consultant and author of the newly released book Enterprise Risk Management: A Methodology
for Achieving Strategic Objectives. He is a former practice manager for risk intelligence for SAS Australia. We invited Greg to share why Enterprise Risk Management (ERM) and his new book
are vital in today's economic climate.
Authorline (AL): Your timely new book Enterprise Risk Management: A Methodology for Achieving Strategic Objectives will very soon hit the stands. Can you please briefly describe what Enterprise
Risk Management (ERM) is/involves?
- Gregory Monahan (GM): ERM is a term that is, in my view, very often misused. One very popular misconception is that ERM is the operation of an enterprise-wide risk management framework,
including policies, procedures and technology. I define that as enterprise-wide risk management. ERM is the management of risks faced by the organization that are not dealt with as part of the ordinary
operations of business lines. In particular, I limit the definition of ERM to the management of risks associated with strategic plans.
(AL): Please share some of your professional experiences using ERM with us.
- (GM): A primary motivation for writing the book was frustration. So many times I have watched organizations fail to achieve their objectives because they haven't considered, let alone understood,
the possible consequences of their actions. People are generally optimistic and so when they get an idea, they tend to believe it is a good one. In the case of a senior manager, that idea is often converted
into a strategic plan and that plan is followed with the optimism with which the idea was conceived. Unfortunately, the plan is often executed with a level of ignorance of the possible adverse outcomes that
matches the enthusiasm for the positive outcomes. ERM is the application of a disciplined approach to managing all possible outcomes.
(AL): Why is your book important in today's business climate?
- (GM): My book prescribes a disciplined approach to the management of risks associated with activities related to strategic objectives. Such a methodology was important yesterday,
is important today, and will be important tomorrow. The methodology is as important as the strategic objective, so as long as organizations are setting objectives, the methodology will remain
vital. It's important because it measurably increases the chance of achieving the strategic objective. There are two parts to that previous statement; the first is that it increases the chance of
success and the second is that the increase in the probability of success is measurable.
(AL): From your perspective, can you speak to the recent United States financial crisis and suggest how ERM could have been utilized-or perhaps, better utilized?
- (GM): Referring to my own definition of ERM stated earlier, I do not believe that the management of the risks associated with investing in high yield, high risk assets are a function of ERM.
Having said that, the methodology I prescribe can be applied to the measurement of such risk. Based on my previous experience as a risk manager with two banks, I believe that responsibility for the recent
spectacular collapses must lie with the people who either willingly or ignorantly took a level of risk for which the institution was not adequately capitalized. The measurement of economic capital for a
bank is a field of great interest for me and I have commenced a book on this very subject, but I maintain that this is not a function of ERM.
(AL): What is one major concept that you hope that organizations will take away from your book?
- (GM): I hope that organizations embrace the 'SOAR' process. The SOAR process involves these four steps:
- Setting metrics relating to the strategic objective
- Observing metric values
- Analyzing the behavior of the metric values and forecasting the possible outcomes
- Reacting to what the analysis reveals
Application of the SOAR process imposes the discipline that is required to increase the probability of achieving the objectives.
(AL): Why did you write this book?
- (GM): I mentioned earlier that one source of motivation was frustration. Another motivation was a desire to help the stakeholders of the organization. I think it is unfair that
shareholders, for example, should suffer financial loss because the organization failed to meet a strategic objective that could have been achieved if a more informed and disciplined approach had
been applied. Having worked in or with quite a large number of organizations, I have gained enough data to be able to say that decisions, in particular the more important ones, are too often based
on intuition rather than data. I think this phenomenon is observable in daily life too. Consider, for example, the data a person might collect when purchasing a dishwasher compared to the data they
might collect when purchasing a house. I'm sure you will find that in most cases the relative volumes of data are not commensurate with the level of investment.
(AL): Who can benefit from your book?
- (GM): The initial beneficiaries will be the people responsible for strategic objectives. They will benefit by a measurable increase in the probability of achieving those objectives.
As a consequence, all stakeholders in the organization will benefit, including its employees, its shareholders and its customers.
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Greg Monahan is a consultant and a former practice manager for risk intelligence for SAS Australia. Greg's consulting clients include a number of SAS offices throughout the Asia
Pacific region and the University of New South Wales. While at SAS Australia, he helped define and execute the marketing strategy for risk management products, primarily in the areas of credit
risk and operational risk. In addition, he helped develop the first version of the SAS Credit Risk Management Solution.
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