How can health sector boards create and nurture a culture in their organizations that embraces modern Enterprise Risk Management? This culture does not assume there will be no risk, nor attempt to eliminate risks. The health sector will always face risk, and yet great boards will actually seek the risks of innovation for service quality, new partnerships, and to enhance value-based contracting as part of holistic organizational wellbeing.
The goal then is not to achieve no risk, but to establish sensible and well-managed risk. Today’s Enterprise Risk Management principles and practices, therefore, deserve more discussion in our Board Rooms. It’s important, for example, that boards ensure that enterprise risk management connects with strategy, as highlighted in an article by the professional services firm, PwC.
Attendees at the 2018 Cayman Captive Forum explored a number of practical risk management insights. Our session on governance trends and best practices for risk management sought to position the role of boards to function less as experts in risk management, and more as enablers of a superior risk management culture. Such boards support talented executives and risk management professionals in mastering and continuously enhancing the use of modern Enterprise Risk Management principles, policies and practices.
Ernst & Young asserts that organizations with mature risk management practices outperform their peers.1 At Gallagher and Artex (a risk management subsidiary of Gallagher), we believe that boards would do well to embrace the “Q Factor” as central to these modern practices. That means asking the right questions at the right time to challenge assumptions, identify risks, understand the potential impact of those risks and then manage to minimize the total costs of such risks (TCOR).
Q Factor is a mindset for health sector board members that enables them to ask wise questions that cannot be answered by a simple yes or no. Such questions require the board and senior management to engage in strategic thinking and conversations that stretch their strategic planning and decision-making to higher levels of performance. Boards that pose Q Factor questions encourage their leadership to journey into uncharted and risky waters of community accountability, more deeply examining value for money spent, contracting with payers, and expanding regulatory oversight.
At the recent Cayman Captive Forum, participants shared key questions they believe wise boards should be asking if they want to continuously strengthen their risk management practices and cultures for overall organizational wellbeing.. The top 20 questions identified included:
- What are the key risks we are likely to face in the coming two to three years, and how can we best quantify their impact on our operations and plans?
- What are the qualifications of a world-class chief risk officer, and how can that person best be recruited and retained?
- How can we best develop and conduct an effective annual risk assessment process?
- What should be the charge, work plan and composition of a board-level Risk Management Committee?
- What knowledge, skills and attitudes should new board members (at the parent organization, as well as our offshore captive) need to understand to optimize the effectiveness of their fiduciary role and responsibilities?
- How should offsite strategic planning and education sessions best be developed to focus directors, officers and key service providers on innovations to address strategic opportunities and risks?
- How should we encourage our directors/trustees to understand and embrace change as our constant partner for success and vitality?
- How should we best anticipate and prepare contingency plans for the “unintended consequences” of our plans, actions, and investments?
- How can we develop and manage positive media relationships in good and challenging times?
- How can we ensure that we are committing adequate financial and human resources to our risk management processes?
- How can we monitor the degree to which we have, at every level of the organization, a culture of ownership, responsiveness, peak performance, and wise communications?
- How should we be inviting in speakers from our staff and advisers to stay informed about the changing landscape of U.S. health regulations for physician compensation and contracting, patient privacy, as well as compliance with payers’ billing and collection practices?
- How should we be partnering with our managers and advisers to be more proactive in our risk mitigation strategies and systems?
- How are we using the results of our risk assessments to shape our plans and investments for future growth and financial vitality?
- What are examples of our risk management work that have generated positive results, and which ones had negative results?
- How can board members best shift the conversations about risk from the downsides to the upside of opportunity when we manage the risks wisely?
- How should we be investing in board education and development about modern Enterprise Risk Management?
- What are the cloud/IT/system technologies that can best support the effectiveness and efficiency of our risk management strategies and staff?
- What are our Total Costs of Risk (TCOR) and how do we compare to national benchmarks and our competitors?
- How must we continuously align our risk management process to our business model in light of the changing policy and competitive landscape?
We encourage your leadership team and board to select the top 5 of these questions judged to be most valuable to your reality. Then have conversations in your c-suite and board room about how you might best pose and answer these top 5 priority questions in your health system. For questions or consultation on creating an organizational culture for risk management, please contact James Rice, PhD, Managing Director and Practice Leader, Governance and Leadership service line, Gallagher Human Resources & Compensation Consulting practice.