Every so often, something bad happens to an organization and people say that risk management, perhaps governance, failed.
Let’s examine that, with special attention to a recent blog post by my friend, Richard Chambers, President and CEO of the Institute of Internal Auditors: When Boards Are Surprised, Who’s At Fault?
If you go to a casino and play roulette, you are taking risk.
You bet on even and it turns up odd.
Are you surprised? You shouldn’t be. At a European casino, there is only a 48.60% likelihood that you will win. (It’s a little less in the US.)
You are not surprised because you know there’s no more than an even chance you will win.
When the CFO presents his forecast for the quarter or year, there is no certainty that it will be achieved. It’s his or her best, hopefully educated, guess based on projections from the management team.
If I was on the board and the CFO presented that forecast to me, I would ask for his or her assessment of the likelihood of achieving that forecast. Is it 90%, 80%, or something else?
If the company fails to hit the target, the forecast of the CFO, should I be surprised?
There was a solid likelihood (perhaps 20% or more) that it would not be achieved.
Maybe I am surprised, but I should not be shocked and I should think twice before blaming the CFO for a poor…
