How SMART Addresses the 5 Weaknesses of Traditional Risk Management
Omega Systems Group's proprietary risk management methodology is known as SMART (Systems Methodology Applied to Risk Termination). It was developed and refined over decades of involvement in high-profile, high-risk operations in space exploration, national defense, healthcare, the Olympics, oil & gas and transportation industries. Elsewhere, we have described what we see as the 5 biggest weaknesses of traditional risk management (RM). Here, we explain how SMART eliminates those weaknesses.
Weakness No. 1 – Traditional RM is not systematic.
SMART is an integrated 10-step methodology that begins by defining the system to be managed (a particular operation or location, an outsourced function, or an entire corporation, agency or organization). The system is mapped as an FFBD or functional flow block diagram. By formally addressing risks in every function in the system, we include both the mundane as well as the sensational. It creates confidence for the responsible executive that the end result is all-encompassing.
Weakness No. 2 – Traditional RM is reactive – not proactive.
SMART uses a rich risk scenario technique to create descriptions of what could go wrong on a really, really bad day – in every function in the system. We teach clients how to "scrub" basic scenarios into "total risk scenarios" and to identify and price potential countermeasures. The beauty is that risk scenarios can be created by anyone in the enterprise, and some of the most serious risks have been brought forth only because those within the operation were asked and encouraged to participate!
Weakness No. 3 – Traditional RM is based on outside expertise.
While outside expertise has a valuable role to play in RM, we do not need to be experts in your field of operations. The expertise to identify risks exists right there inside your enterprise. We work, like orchestra conductors, to help elicit, organize and evaluate every conceivable risk that your internal expertise can generate. The entire enterprise begins to think about risk . . . in a positive way! Moreover, we teach you how to form and conduct Risk Juries, at which your hand-pick staff will score each risk scenario and either approve or reject each countermeasure proposed.
Weakness No. 4 – Traditional RM is often limited to two dimensions.
SMART requires that every scenario presented to the risk jury include a minimum of 3 countermeasures, including the total cost of each. By incorporating countermeasure cost into the decision-making process, an executive may be rational about which risks can and should be controlled and which ones may be accepted. Whether approved or rejected, all information about every risk is stored in our TOTEM software, to be re-evaluated at future jury sessions, so that inevitable changes (to severity, probability and/or cost) may be considered and reconsidered.
Weakness No. 5 – Traditional RM lacks an effective ranking of risks for significance.
TOTEM records all risk scenarios and their costs to control. It also records jury scores for probability, severity and countermeasure cost effectiveness. Hundreds, even thousands of risks will be identified and ranked in a RISK TOTEM POLETM, so that the CEO will know the enterprise's No. 1 Risk, No. 2 Risk, No. 3 risk, and so on. The executive knows exactly how many risks have been entered into the software, may study any of the identified risks and even review how each jury member voted on them. Each individual involved with SMART & TOTEM, is assigned an appropriate level of access to the securely housed information, and authorized additions and changes may be made 24/7.
A truly robust RM strategy requires proactive identification of many, many risks of all types and in every corner of the enterprise. It requires those on the scene - where losses can occur - to take ownership of the effort to prevent them. It requires that countermeasure cost be considered, not just probability and severity. It requires a rational means for the responsible executive to decide the "cut-off" between acceptable and unacceptable risks. We know of no methodology in the world that eliminates all of the 5 biggest weaknesses of traditional risk management – other than SMART.