Building Business Value

I just happened to become a CPA by accident - and out of necessity. It was never planned that way. When I got to college I had no idea of becoming a CPA and then decided to become an accounting major because they were getting jobs and the courses were easy for me. The accounting curriculum required a significant amount liberal studies and I then found out that I liked these courses - even more than my accounting courses.

My last two posts have dealt with understanding risk and the application of the ERM Framework developed by COSO. Today we’re going to discuss a variety of risks and the process of identifying them. When teaching these concepts to my students I always mention that they can be applied to everyday life and not just business. Managing risk impacts everything we do.

Determining your tolerance and your appetite for risk are essential steps in managing risk. This is following up to my last post which introduced the ERM framework, its objectives, and components.

Before getting into risk tolerance, it is important to gain an understanding of risk appetite. I think the best way to explain tolerance is to link it to strategy. Strategy helps to determine the acceptable balance between growth, risk and return. This becomes what I call the relationship between strategy and risk appetite.

Today’s business and economic environment is uncertain at best. This reality makes it essential for managers to understand risk and to have a framework and process for dealing with it. The Committee of Sponsoring Organizations of the Treadway Commission known as COSO recognized this need and developed the ERM Framework in 2004. This framework provides a solid foundation for both understanding and dealing with risk.

Lean and lean thinking are terms we hear bantered about on a regular basis. It is important for business people and advisors to have a clear understanding of what lean means and how it can be applied to benefit an organization.

The concept of lean was popularized by the book Lean Thinking written by James Womack and Daniel T. Jones as an extension of their description of the Toyota production system and its applications. They provided new insight into value, the value stream, flow, pull, and perfection. These are tools to eliminate waste and create wealth in an organization.