Home Builder Canada Readers survey
newsletter
NP_lineHome Builder Magazine New Products Online
NP_line
Computers, Educational
&Technology

NP_line
Electrical & Mechanical
NP_line
Exteriors
NP_line
Finishes & Surfaces
NP_line
Kitchens & Baths
NP_line
Landscape & Design
NP_line
Speciality Products
NP_line
Structural
NP_line
Tools & Equipment
NP_line
Windows & Doors
NP_line
New Products home
NP_line



COMMON CENTS

Enterprise Risk Management in the Construction and Real Estate Sector

By Bo Mocherniak and Shane Troyer

In an increasingly complex global risk landscape, organizations find themselves struggling to keep pace. The challenge isn’t just the ongoing expansion of risk scenarios, but determining who is responsible for mitigating and managing which risks.
While management is responsible for implementing risk management policies and procedures, Directors’ responsibilities are to ensure that:

Despite the potentially serious consequences of a risk event—which could include damage to shareholder and brand value—many companies have yet to clearly define their expectations around effective Enterprise Risk Management (ERM). In the construction and real estate sector, key risks requiring active management include:

A Reasonable Approach
Many neglect formal risk management practices because they believe the technology required is too expensive. Regardless of size, every organization must ensure enterprise risks are being properly defined and managed. So how much is enough? Let’s consider three common challenges in implementing a “right-sized” ERM process:

Perceived lack of complexity
Sometimes it’s difficult to get buy-in on implementing a new process such as ERM, regardless of its potential value. One common perception is: “our business is not complex and all of the risks are well known, so why invest in this?” The answer: Having simple business objectives doesn’t preclude risk. Organizations often see such perceptions exposed when they finally adopt an ERM process, quickly learning that organizational risks are more complex than initially thought. Moreover, if risk identification processes and controls exist and only require formalization, then the investment in ERM will be a small one. Consider assessing primary risks at a high level, documenting them through a simple risk register and identifying existing controls. This relatively minimal effort can give owners and board members insight into organizational risk levels without requiring significant resources.

Prioritization
Every organization has operational deadlines and other issues competing for resource availability, sometimes putting ERM funding in jeopardy. Yet ERM actually facilitates effective resource prioritization. By giving those charged with governance a better understanding of which risks may negatively impact organizational objectives, ERM provides insight that helps better guide resource allocation. To complete the process, formally document the decision-making process.

Accountability
An effective ERM framework clearly identifies risks to the organization’s objectives, puts processes in place to reduce them and clarifies who is accountable for those processes. To maintain a positive risk management culture, it’s important that the board and executives consistently support a fair and transparent link between process and accountability. If a correct decision based on an appropriate assessment of risk is made by an employee—and that decision is made within their realm of authority—it’s extremely important to judge that employee on the process they undertook rather than the result of the decision. If management and the board support the concept of risk-based decision-making, an appropriate risk management culture can flourish.

An Opportunity for Your Organization?
Determine whether you’re fulfilling your risk management responsibilities by asking:
Are risk management policies and procedures adequately designed and communicated to employees?
Is there a clear “tone from the top,” and is risk identification and mitigation embedded into decision-making?
Do risk management practices identify and prioritize significant risks to the organization?
Is there formal reporting on high-priority risks, addressing how risks are managed with respect to risk profile?
Does formal documentation provide evidence of risk management due diligence?
Every organization needs a mandate for risk management practices that clearly outlines the board’s role. This will not only improve accountability, but it will help ensure that risk management strategies are designed and operating effectively.

Bo is National Leader for the Real Estate and Construction Group of Grant Thornton Canada, and a member of the Grant Thornton International Real Estate Sector Group. He can be reached at bo.mocherniak@ca.gt.com.

Shane Troyer, CPA, CGA, CFE, CIA, CISSP, helps public and private companies manage business risk and respond to risk events. He can be reached at Shane.Troyer@ca.gt.com.

 

External Links: Associations & Governments. Builders & Renovators . Manufacturers & Suppliers

Home . About Us . Subscribe . Advertise . Editorial Outline . Contact Us . Current Issue . Back Issues . Jon Eakes



© Copyright - Work-4 Projects Ltd.

 

 

 


homeBUILDERcanada.com | Home BUILDER Magazine | Canada's #1 Information Source for Residential Home Builders and Professional Renovators

HB house ad sub
Home Builder Magazine Ask Jon Eakes
Home Builder current issue