RIMS analyses of root causes of loss

25 July 2013

Risk management professionals who’ve traditionally used a root cause analysis approach after an adverse risk event are increasingly using this same management strategy to “plan forward”, according to the Risk Management Society (RIMS) latest report.

The root cause analysis strategy enables risk management professionals from bankers, traders, treasuries and elsewhere to manage the risks associated with new business objectives before they happen. The approach should theoretically also highlight opportunities ripe for exploitation that might otherwise be overlooked, says the US-based non-profit RIMS association.

The RIMS report entitled ‘Root Cause Analysis: More Than Just Cleaning Up the Mess’ is co-authored by its director of strategic and enterprise risk practice, Carol Fox, and Andrew Bent, a risk coordinator with Suncor.

The report provides in-depth detail about the advantages of eight different root cause analysis techniques that have been proven to help identify the underlying reason for a loss, and the factors that could contribute to future success.

“As highlighted in the RIMS risk maturity model, a root cause discipline is a key attribute or competency for mature enterprise risk management [ERM] programmes,” said Fox. “With more precise information on the likely causes and impact of risks, organisations can make more informed choices about how they manage the 20% of root causes that drive 80% of the outcomes in a predictive way, along with the more typically used post-event analyses.”

Bent added: “The formal use of root cause analysis techniques provides an opportunity to not only radically overhaul the management of risks before they occur, but can also provide a means of systematically lowering the cost of risk.

“By strategically integrating root causes analyses into an organisation’s business model through both the planning and operational phases, risks can truly be managed across their whole business life cycle.”

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