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Risk managers need to demonstrate strategic vision over metrics: RIMS panel


PHILADELPHIA—As the saying goes: Whatever interests my boss fascinates me.

Risk managers seeking to more effectively demonstrate their department's value to senior leadership should give careful consideration to that phrase's meaning, a panel of experts said last week at the Risk & Insurance Management Society Inc.'s conference in Philadelphia.

More and more, convincing C-level executives of risk management's value requires thinking less like a risk manager and more like an executive, panelists said. Company leaders are more likely to invest in additional risk management personnel and resources when the department is characterized as an integral part of a company's forward-minded strategic planning instead of merely a force field or safety net, the panelists said.

But rather than frame their operational successes and goals in a strategic sense, risk managers often overemphasize prior period results, such as reductions in claims, total risk costs and other quantitative metrics—and the day-to-day mechanical elements of their work that produced those results—when reporting to senior executives.


“Senior-level executives want risk managers who have a vision and who can execute that vision,” said Michael Tannenbaum, president of the East Hanover, N.J.-based recruiting and consulting firm Key Strategies L.L.C. “It's not so much about the technical aspects of risk management. Risk managers who get caught up in the nuts and bolts of what they do are under the impression that they're doing a good job, and they probably are, but they're missing that strategic piece.”

To strengthen the value proposition of risk management, risk managers first must establish key performance indicators that will serve as the backbone of their communications with company leadership. But those indicators must look beyond familiar cost-of-risk metrics, a difficult proposition for many risk managers who, over time, might rely to much on quantitative performance measurements, panelists said.

“Once your performance measures are created, it's often difficult to change them, even as business needs change,” said Roberta Martoza, executive director of corporate insurance services at New York-based JPMorgan Chase & Co. “Too often, the focus is on the process and not the value that these processes provide to the organization.”

Citing a previous report in Business Insurance, panelists said there is a significant gap in the extent to which risk managers and senior leaders value total cost-of-risk measurements.


Additionally, panelists noted, common TCOR metrics such as premium costs, claims experience or lost time and injury compensation rates easily can be influenced by macro conditions beyond a risk manager's control, and may prompt companies to draw errant conclusions about the value of their department's operations.

“This is not something to be taken lightly, said Edward Koral, a New York-based specialist leader at Deloitte Consulting L.L.P. “Figuring out what your key performance indicators are and how they can be evaluated in a way that is contextualized for the marketplace—and for other things that are happening within your company—is an important part of measuring the performance of your risk management department.”

Instead, risk managers could begin by tracking and qualifying their department's interactions with other, nonrisk-related segments of the company, such as finance, marketing, and research and development.

“You're getting it right when you get the phone calls,” Mr. Tannenbaum said. “Think about the point at which other departments are bringing you in on projects. Depending on where you come in, you can use that to gauge your department's value.”