Why a risk is a risk

Why a Risk Is a Risk Is a Risk
All risk is ultimately financial. Every risk can be expressed in financial terms: hitting the top and/or bottom line. It's therefore essential that the CFO be involved in the definition, detection, and measurement of risk -- as well as the planning for it.
In the wake of terrorist attacks, natural disasters, man-made disasters, and financial scandals, companies areexpanding their views of the types of material risks that can jeopardize their business. While companies are increasingly under pressure to disclose material risks, forward-thinking organizations are looking to do something much more: avoid them altogether.
The shift can be attributed to the finance function's unique ability to look across an entire organization and all of its operations. Theability to identify, prioritize, and effectively manage risk requires a comprehensive and integrated cross-functional view of both financial and nonfinancial risks. Therefore, traditional organizational and decision-making silos limit the ability to identify and manage risk.
With this broader view of risk taking hold, CFOs are stepping into a leadership role to orchestrate or aggregate theenterprise-wide and cross-functional views of risk. And, the leaders are beginning to integrate risk management into the planning process.
A Case of the Flu
If the Zoological Society of San Diego -- one of the foremost institutions of its kind -- were a for-profit enterprise, it would qualify as a substantial corporate entity, with over 3,000 employees in 30 countries and revenues of over $160 million ayear. It also has a priceless strategic asset to conserve and develop: over 4,000 animals from more than 800 species, many quite rare. Like a for-profit, the zoo is constantly looking for new ways to enhance the value of that asset. At the same time, it recognizes that any threat to its collection places at risk its ability to achieve its goals as an organization.
The spread of avian flu virus fromthe Far East and the probability that it could enter the U.S. became a matter of national concern in Fall 2005, prompting Congress to appropriate more than $7 billion to help the country prepare for an outbreak. Executives at the San Diego Zoo soon thereafter set up a task force including the CEO, CFO, COO, and managers from every corner of the institution to prepare their response. At risk was thesurvival of the society's priceless collection of birds, as well as employee and visitor safety.
"If avian flu were to become a human-to-human transmission, how would we continue?" asked CFO Paula Brock. "If we could not have visitors anymore, how do we keep this collection?"
Five years ago, the society began putting processes in place that were closely tied to the budgeting process and aimed atbreaking down silos and prompting its various departments to work more closely together on strategic and resource allocation and risk management. The avian flu task force was seen as a major test of that capability. "Not a department has been without a role," says Brock.
One step in developing a response plan was to seek advice from public health officials and to contact and share information withzoos and other animal organizations around the world. Another step was revisiting a successful effort the society had made several years ago to prepare for a possible outbreak of another deadly bird contagion, the Newcastle disease virus. The zoo proactively shut down its aviaries to visitors and implemented bio-security measures for waste management, spraying tires of incoming vehicles that mighthave been exposed. And even though Newcastle disease affects only birds, zoo officials talked to the public to reassure them that it was still safe to come to the zoo.
Avian flu is a far more dangerous threat, so planning was larger in scale and based on different levels of threat that the task force defined. Each department developed its own set of measures to implement as the threat shifts...