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Enterprise Risk Management The Way To Go For Businesses, Says Expert

By Rema Nambiar and Kisho Kumari Sucedaram

KUALA LUMPUR, March 11 (Bernama) -- Sixteen years ago, when the government forwarded a request to risk management specialist Dr Barathan Muniyandy to come up with a structured programme for enterprise risk management studies, he jumped at the opportunity and even proposed a name for the institution that would conduct the course - International College for Business Defence.

"I felt the name was apt as risk management was all about protecting businesses from internal and external 'attacks' but the authorities thought otherwise," he recalled with a chuckle. The institution was, eventually, named Putra Intelek International College (PIIC).

The college got off the ground in 2000 with just one offering, which was the government-requested Diploma in Risk Management course. It has grown over the years to include other courses, which are conducted at its campus in Bandar Puteri in Puchong, Selangor.

"We were asked to come up with structured education for risk management because the government had recognised the need for one, in view of the rapid growth of business and commercial activities in the country, as well as the evolvement of complexities involving risks," Barathan, who has a PhD in risk management and is PIIC chief executive officer, told Bernama in an interview, here recently.

Since risk management is generally defined as "forecasting and evaluating financial risks to avoid or minimise their impact", businesses tend to focus on reducing financial risk in their risk management strategies.

But Barathan contended that while financial risk was being portrayed as the biggest issue in any organisation, most of the big losses companies were facing today were not caused by financial mismanagement or fraud but "decisions made by the senior managements".

"Some 85 per cent of company failures are due to decisions made by senior management, only 15 per cent are caused by financial mismanagement," he claimed.

ENTERPRISE RISK MANAGEMENT

Barathan, who has been a risk management consultant for the past 26 years, said when one studies business management, one is only taught how to run and administer a business. Risk management, on the other hand, entails a wider field.

"When you study business management, they will tell you what you are supposed to do but risk management will teach you what you are supposed to do; what you are not supposed to do; and how to do it.

"These three things combine and become enterprise risk management (ERM)... it means (managing risk) across the business organisation," he explained.

The world, he said, was currently focusing on business management but he believed that risk management was slow emerging and would eventually supersede the former.

Barathan, who is also CEO of Handal Group - which provides ERM initiatives and consulting and risk mitigation services, among others - said companies today were required to operate with cost effectiveness, prudence and social responsibility in mind, hence "business investments involve more risks from all perspectives than they did in the past, and these need to be addressed diligently".

As businesses become increasingly concerned about sustaining their growth and surviving in a fiercely competitive business climate, he figured that a winning strategy for them would not only require operational dynamism but the sheer ability to assess and mitigate risks.

"Companies today must embrace a fresh strategy and ability in learning to manage what they don't know," he said, adding that this was where risk management expertise would come in.

FOUR MAIN ELEMENTS

According to Barathan, risk management covered four elements, namely strategic, operational, financial and compliance risks.

"Strategic risk is all about the top-level management and the strategies they take and decisions they make. A company's business environment and its every success and opportunity come with risks embedded in them," he said, adding that the other risks covered the entire operations, as well as matters relating to finance and compliance.

By covering these four main areas, companies can avail themselves of a complete spectrum of enterprise risk management, he pointed out.

Stressing how important it was for businesses to identify risk and matters related to risk, Barathan said decision makers need to understand the risk involved in running a company.

"The success of a business today lies in the ability to identify the main risk drivers and efficient risk-reducing measures. There's a need to maximise control over risk and potential uncertainties that may lead to financial or brand losses," he added.

-- BERNAMA