Notes from a Risk Director: The Risk/Profit Relationship
Whether you toil in the risk management trenches (like me!), or operate in the clouds with the dream sellers in sales and marketing, it would be hard to argue with the mantra that "building relationships with customers increases profits".
Building customer satisfaction should be seen as a means to an end, not an end in itself. Increasingly, the healthier and more profitable companies of the future will be the ones that keep their employees motivated to work with happy and satisfied customers. Agreeing this is the right approach is easy; delivering it requires a process, and it is more of an art than a science.
Customer focus is essential, but building internal relationships is critical. Companies spend lot of time, energy and money to gain and retain customers, but many ignore the importance of internal relationships. Those of us working in the risk management function are often seen as the ‘business prevention officers’. But the counter to the business development people will often be ‘where did you get that crazy/risky idea from?’
In all seriousness, there needs to be a creative tension between risk and business development. The balance that needs to be drawn relates to the quality and level of dialogue. One man’s challenge is another’s opportunity. Both words are over-used and increasingly seen as a euphemism for a problem.
Language and style in communications are important. Too cosy a style will mean things are missed, while a hard-edged adversarial approach can often lead to defensiveness or even economy with the truth. Risk management may have to use some ‘hard words’ with sales or marketing but this balancing of risks is where the profits are made. It is good to take risks, but only if we can manage them well.
Whether you view the glass as half full or half empty, in any dialogue where the argument is between maximising the opportunity and minimising the risk, the focus has to be on reaching the optimal decision. Win-win is preferable every time to win-lose.
The strategy of any company is focussed on profits. Key Performance Indicators (KPIs) are compared every week, month, quarter and year. But do you have metrics for measuring the quality of the relationship between risk and business development? These relationships are the ones that ultimately correlate to companies profits.
Increasingly, the value of external relationships or brand values will be included in the balance sheet along with the intangible assets. While the value of internal relationships may never appear on the balance sheet, the consequence of poor communications will certainly be felt in the profit and loss department.
by Navdeep Arora
Risk Director of Merchant Money Ltd
Merchant Money - funding your business success™