Every area of business operations involves some type of risk, which if unchecked can threaten not just that specific area but the entire business. For example, according to Mercer’s Global Governance Survey 2009–2010, the great majority of businesses understand that mismanagement of benefit plans can have significant impacts on finances, reputation and overall strategy. Especially in the wake of the recent recession and the ensuing financial crisis, many organizations realized how exposed their benefit plans are to risk, and that they are unprepared for economic “surprises”:
“Significant declines in asset values and the dramatic deterioration of defined benefit plan funding positions put stress on already constrained resources, as organizations had to focus on the survival of their core businesses. For many, the crisis and its impacts on benefit plans were unanticipated, and insufficient attention was paid to risk management activities, such as scenario planning and extreme event modeling. To make matters worse, those that did not have ready access to information or established decision-making structures struggled to respond quickly and effectively.”
Naturally, there are important lessons for organizations that offer benefit plans to their employees. One is that you’ve got to move beyond “planning and considering” changes to your plan governance, and get into action mode. That means figuring out what resources and information you need, gathering and organizing those things and moving onto implementation. Another thing is expanding the scope of your risk management activities. It’s one thing to incorporate risk management into your plan design and take care with your funding decisions, but it’s also important to monitor the plan’s activities and pay attention to investment policy.
Clear and reasonably strict policies and procedures based on current expert information—and the continued will to follow the procedures—are crucial to provide a strong framework for risk assessment and protection from liability.
First Reference is currently in the process of updating our risk assessment best practices guide. Look out for Risk assessment tools for effective internal controls by Jeffrey Sherman and Colin Braithwaite, which will help your organization identify and mitigate risk using comprehensive surveys of key operational areas.
Finance & Accounting PolicyPro from First Reference features entire chapters devoted to risk management and governance. In fact, the whole second volume is devoted to governance, covering topics like strategic, business, financial and succession planning; records management; contract administration; litigation; risk management and assessment; business recovery planning. The book also covers employee benefits and pension plans.
First Reference Human Resources, Compliance and Internal Controls Editor