As a risk manager, you will often be asked to explain the RoI (return on investment) of you, your team, even the whole risk management program.
Effective risk management can help an organization grasp an opportunity and realizing an upside risk should generate a positive RoI.
However, when you are focussed on shoring up a weak system, plugging gaps and minimizing risks, showing an RoI can be hard. Even so, an inability to show a positive RoI in a cost-conscious environment can threaten investment in your team. It can even make people question the value of the program as a whole.
I had this time and time again when I was a security risk manager on a major LNG (liquified natural gas) project. This was my first job in the private sector, and I was struggling to re-orientate myself to everything boiling down to dollars and cents (among other things). I had no real way to calculate my RoI, far or less show a positive return. Luckily, I got a great tip from someone: I should still make it about money but to turn the question around.
Instead of RoI, they suggested I talk about LoI (loss on investment).
Highlight what you’re protecting, not what you cost
Framing discussions in this way allowed me to compare the potential losses – though accidents, incidents and material losses – to the cost of the security program itself. We were LoI positive as long as the losses prevented were greater than our costs.
And even when there were no dollar metrics available, I could equate the cost of the program to insurance showing that we were a minuscule ‘premium’ compared to the value of the assets ‘insured’.
I could have expressed our ‘savings’ as RoI, but framing our contribution as LoI really allowed me to demonstrate our value. We went from being thought of as a cost to being seen as protecting value even though we still weren’t generating income.
This approach helped explain our role in the overall project but it also helped unstick several security projects that were stalled because there had been no tangible RoI.
Helping exploit an opportunity is the optimum type of risk management and maximizing the upside will lead to a positive RoI. However, most of us are focused on risk minimization and mitigation before we get to that stage. In these situations, instead of talking about your RoI, start discussing your LoI.
This will help reinforce your contribution to the business and illustrate the value your team provides. Make this shift and I hope you’ll be as pleasantly surprised as I was with how this can improve the perception of risk management within your organization.
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One thought on “Address your LOI before your ROI”
Great article and way to frame the true need.