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Measuring performance: numbers alone don't count.

by James W. Webb

James W. Webb, ARM, is president and chief executive officer of Frank B. Hall of Michigan in Detroit.

It is impossible to evaluate risk managers' effectiveness solely by quantitative measures. Premium costs and losses are poor barometers of their effectiveness. Surely, if their performance were evaluated over the last four years, the soft market would have them basking in glory. The sharp upturn in 1985, however, would require them to explain to senior management why they did such a poor job. Therefore, other means of measuring performance are needed.

For openers, good risk managers need to be jacks-of-all-trades, with a working knowledge in such areas as environmental regulation, law, finance, oceanography, engineering, nuclear science, psychology, biology, industrial relations and insurance. This is not to say that risk managers need to be experts in all or any of these areas. However, they should be able to identify where difficulties lie and know where to find expert advice.

One way to become knowledgeable in other areas is through education. Unfortunately, many risk managers believe their formal education ended years ago when they secured undergraduate degrees and professional designations. But the world continues to change, and subsequently, no one can afford to remain educationally stagnant.

Although earning the ARM and CPCU designations signal professionalism and dedication to excellence, most risk managers do not work for insurance companies or brokerages, where these designations are readily recognized. Instead, they work for a variety of organizations and usually report to senior managers in the legal or treasury departments. Therefore, to achieve a high degree of credibility, risk managers should underscore their advancement potential by earning a law degree or a master's degree in finance.

In addition to achieving a formal designation and completing other course work, risk managers must be computer literate. They do not have to be computer programmers, but at the very least, "friendly" users of computers. Demonstrating the ability to master new technologies will certainly help risk managers gain favor in their companies.

Top performing risk managers also maintain positive attitudes. Many risk managers, by the very nature of their business, tend to look at the world from a negative point of view. The risk manager's job is to foresee and identify events and scenarios that could go wrong and then address the problems with a potential solution. If, however, risk managers become, to borrow a phrase from political columnist William Safire, "nattering nabobs of negativism," they will be avoided and not sought out or supported within the company.

Like other managers, risk managers must possess a "can do" attitude. Time and again I have met risk managers who complain that their hard work goes unappreciated. Perhaps if they had a more positive, aggressive attitude, they would gain respect from superiors who would find communicating with them a more fulfilling, productive exercise.

Because risk managers do not make or sell products, they are considered support personnel, and therefore, by definition they are overhead. Thus, they are expected to help make the organization run smoothly Creating practical, readable risk management manuals and loss reporting forms is one way to accomplish this.

The financial aspects of the risk manager's job is important, but the smooth implementation and execution of financial programs is just as important. Risk managers should make certain that their programs supplement management goals. Even when management is not using its best judgment, risk managers, like all managers, should support management through their plans and programs.

The best risk managers also love their jobs and show it. I know this from experience, having once worked for a risk manager who, although he had a keen intellect and a good knowledge of the insurance business, he lacked passion and was the worst manager I have ever known. He often said, "Mr. Webb, all things in moderation." If everything is done in moderation, everything will turn out mediocre.

If you are an ardent golfer, go on the tour. If you are a possessed softball player, try to make a living on the field. If you want to be a businessperson, be a businessperson. But if you work 9 to 5, do not be surprised when you receive a mediocre review. Simply put, one must be dedicated to his or her job.

While risk managers should not be evaluated by premiums and losses paid over the short term, they do bear responsibility for staying in tune with the marketplace and being able, to a credible degree, to forecast cycles and trends. This can be accomplished by using market intelligence, judgment and statistical forecasting, such as linear regression analysis or exponential regression analysis.

Finally, risk managers can be rated based on their companies' risks compared to those of similar-sized companies in the same industry. I sometimes hesitate to use these measurements because they are often taken as hard-and-fast figures, rather than benchmarks, which is what they are meant to be. Nevertheless, comparing a firm's overall risk to that of other similar firms is a useful measuring tool.

At the end of the day, the risk manager's performance is difficult to quantify. To be fairly treated, therefore, risk managers must be properly educated, well-informed, professional, ambitious, likeable and team players.
COPYRIGHT 1991 Risk Management Society Publishing, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1991 Gale, Cengage Learning. All rights reserved.

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Title Annotation:risk managers' effectiveness
Author:Webb, James W.
Publication:Risk Management
Date:Jul 1, 1991
Words:866
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