Resources and Risk
Quality choices in a new era of risk
A new study underscores the imperative nature of a well-established—and adequately funded—risk management strategy. The study, "The Risk/Earnings Ratio: New Perspectives for Achieving Bottom-Line Stability," reveals the close correlation between managing property risks and earnings volatility.
The results are striking: Organizations with best practices in managing property risk produced earnings that were 40% less volatile than companies with less advanced practices, according to the report, which was commissioned by FM Global and conducted by Oxford Metrica.
"By pursuing strong physical risk management processes and systems to prevent the likelihood of losses caused by fire, natural hazards, equipment failure, human error and other perils, a company will potentially reap a measurable reduction in earnings volatility—the degree to which earnings fluctuate over a given period of time," says the study, which can be found at www.fmglobal.com/study.
The research also suggests there are negative consequences to cutting back on physical loss prevention resources. But how do organizations, faced with pressure to reduce expenses, decide how and where to devote resources to risk management?
One thing is certain: Resource decisions must be made methodically and logically. This month’s cover story, "Safe and Secure," provides some guidelines and advice for assessing and funding risk.
The authors explain the logic behind one government agency’s equation for calculating security risk management—a method that can be used by any type of facility or organization, regardless of its vulnerability. The subject of increasingly scarce resources is also addressed.
Another feature this month, "Fail-Safe FMEA," explains how failure mode and effects analysis can be combined with other quality tools to create an effective quality risk management infrastructure. Several quality tools can be employed in the effort.
On the flip side of our issue theme, it’s important to remember that risk can be a good thing, especially as it relates to innovation. In a new column we’re calling "Innovation Imperative," expert Peter Merrill highlights the importance of embracing risk to foster effective innovation. I think there’s a lot to be learned from his unique perspectives on global innovation, which QP plans to publish every other month. Here’s a first glance.