Five Ps of Risk Management in the Kenyan Context by Tom Mulwa

EDITION 1/2014

he inaugural Liaison Risk Management Forum was held on Thursday 6 th February 2014. We intend to hold these forums quarterly, in order to provide a platform where challenges emanating from the risks that face our country can be shared, and solutions and risk management options can be explored. Why the focus on risk? Risk is a pertinent issue not just because of the dynamic, ever changing nature of the world we live in, but also because the current decade has seen Enterprise Risk Management (ERM) emerge as a key issue in management theory. Discussions at this first forum were ably led by five panellists, and moderated by Larry Madowo. The panellists were Dr. Wahome Gakuru, Apex Consulting, (Public Policy expert); John Kariuki, Assistant Director Vision 2030, (Economist); Dr. Caesar Mwangi (former CEO of Sasini and Agribusiness expert); James Mworia, CEO,

Centum Investment Group (Investment and Finance expert); Mr. Baiju Shah Director, 3 Mice (IT Expert). Five themes emerged from the dialogue which we have dubbed the 5 Ps of Risk Management in the Kenyan context. These five themes are:People: People are a key factor in risk management because they are responsible for both the existence and effective management or risk. Why do some businesses bounce back faster than others after a disaster? Good leaders that plan ahead and put in place effective disaster plans/emergency response plans. Additionally, personnel that are fully sensitized for effective response can also make a difference. Planning: Planning is critical. This calls for us to adopt a pro-active stance. At present, passivity is all too common in Kenya, and as a result, management by crisis has become the norm. This trend is costly and sub-optimal solutions are the inevitable consequence.
Cont. on page 2 col. 1

Inside:
Specific Risks:

1. 2. 3. 4.

Devolution Risk Food Security Risk Food Safety Risk Risks caused by the Inequality Gap and Unemployment 5. Information Technology Risk 6. Disaster Recovery Management 7. Mergers and Acquisitions Risk 8. Strategy Execution Risk 9. Terrorism

Risk is a pertinent issue not just because of the dynamic, ever changing nature of the world we live in, but also because the current decade has seen Enterprise Risk Management (ERM) emerge as a key issue in
Tom Mulwa addressing the forum.

management theory.

Risk Forum Africa is published quarterly by Liaison Risk and Pension Consultants. The newsletter captures dialogue at the quarterly Liaison Risk Management Forums. Copyright Liaison Risk and Pension Consultants, 2014.

... from page 1

Perspective: Risk management requires a long term view. We must let go of short term thinking, as it will only lead to stop-gap measures and temporary solutions. The right perspective is gained through disciplined planning. Paradigm: A new paradigm is required among national leadership and public sector employees. Dr. Caesar Mwangi pointed out that the public sector seems to be dominated by those with a My Turn to Eat (MTTE) mentality and that a shift to a My Turn to Serve (MTTS) mentality is long overdue. (The MTTE paradigm is, incidentally, linked to short term thinking). Personal Leadership: Every Kenyan needs to recognise that real change can and must start with me. Kenyans are becoming more and more individualistic, yet if we are to arrive at lasting solutions, we need to be nationalistic. We need to make the sacrifices necessary for real change to take place in this country and refuse to make decisions which initially appear to be convenient but, which, in the end, compromise the national good. I would like to express my appreciation to all who attended the inaugural forum and in particular to our distinguished panellists for ensuring that tangible, practical solutions emerged out of the dialogue. My sincere thanks as well to KEPSA for their support. We look forward to another successful forum in April. Tom Mulwa is the Managing Director, Liaison Risk and Pension Consultants Ltd.

Specific Risks: Challenges and Solutions

Dr Ndegwa of KEPSA giving a token of appreciation to Dr. Gakuru.

Dr. Wahome Gakuru and John Kariuki during the panel discussion.

A range of risks were discussed during the forum. The highlights of the discussions were as follows:
Devolution Risk: One challenge facing devolution is what could be perceived as a fiefdom mentality amongst County Governors. This mentality manifests in lack of accountability, coupled with wastage of public resources. A second challenge is a potentially bloated workforce. Solution: Solutions:

The Kenya Anti-Corruption Commission should set up oces in the Counties. There is a need to be proactive and not wait until grand corruption at County level is unveiled. Vision 2030 Committees should be established at County Government level. Leaders who perpetrate corruption must be dealt with decisively. Kenya should emulate Singapore and Ghana in this regard, where the war against corruption was led by the Head of State.
Food Security Risk: Whereas it is well known that Kenya experiences drought within a five year cycle, the response to these droughts has been repeatedly ineffective. The long term effect of this continued, inadequate response to droughts in a country where the majority derive their living from rain-fed agriculture, is systemic poverty. 2

First and foremost, Kenya must put in place a comprehensive, pro-active, coherent, food security plan. The biggest source of risk in the agricultural sector is the absence of a plan. Livestock and crop insurance should be more accessible. A National Agricultural Insurance Policy is currently in the process of being developed. Enhance use of irrigation. Delays in the implementation of various national irrigation schemes must be addressed. Trees should be planted in order to reclaim and increase forest cover, particularly in catchment areas. We need to return to the days when the tree planting agenda took centre stage. Every individual and every corporate can and should plant trees. Farmers should engage in value-addition where possible, as this will enable them to earn higher margins overall. Higher margins are in themselves a risk mitigant for those whose livelihoods depend on agriculture. Use of drought resistant varieties. Use of high yielding varieties Kenya should follow Israels example here.

Food Safety Risk: Even in countries that are food secure, significant damage can be done by unsafe food or contaminated beverages. Kenyans know all too well the great harm, including death, brought about by this very risk. Solution:

The Forum was attended by a representative of the National Food Safety Association. The association is advocating for the development of a National Food Safety Policy.
Risks caused by the Inequality Gap and Unemployment: The rising number of desperately poor people is a grave concern, and a source of significant risk to the stability of this nation. Systemic unemployment leads to hopelessness and makes people engage in crime and/ or become vulnerable to recruitment by terrorist groups. Solutions:

Where businesses are well managed and achieve appreciable growth, the private sector can help solve the unemployment problem. James Mworia shared how Centums employee base has grown ve-fold in recent years, as a result of business growth.

The rising number of desperately poor people is a grave concern, and a source of significant risk to the stability of this nation. Systemic unemployment leads to hopelessness and makes people engage in crime

Solution: Continuous reviews of systems to detect and address vulnerabilities. Disaster Re cover y Management: This is an observed area of neglect in many organisations in Kenya. Kenya does not have enough intelligent data centres. Solution: An effective risk management s olution st ar ts by mapping the disasters that are likely to affect an organisation. Once the plan is in place, it must thereafter be continuously reviewed to ensure it remains relevant.

Kenya faces a crisis of skills, not a crisis of opportunities for employment, (Dr.Gakuru). This calls for restructuring our education system so that it can address the mis-match between the skills required by employers and the skills/knowledge possessed by the average university/high school graduate.

I n f o r m a t i o n and/or become Te c h n o l o g y R i s k : Banks continue to vulnerable to lose substantial sums recruitment by on account of fraud. The shift to online and terrorist groups. mobile banking has Mergers and resulted in increased risk Acquisitions Risk: exposure. This stems from the rapid speed Statistics show that mergers/acquisitions with which transactions are executed and do not always deliver the value expected. the fact that bank customers can now interact directly with the banks IT systems Solution: The critical thing beyond the on a 24 hour basis. Additionally, the fast numbers is to understand the people who make the numbers happen.What are their pace of technological change means that values? How committed are they to the systems rapidly become obsolete, yet by organisation and its strategy? Investors their very nature, these systems cannot be must recognise that culture affects an overhauled/upgraded overnight. individuals work-ethic. It pays to take time to induct, orient and acclimatize the staff of the acquired entity to the ethos of the new owner. Secondments to the holding company can be useful in this regard.

Strategy Execution Risk: The biggest determinant of effective strategy execution is people, because systems and processes interact with people. Solution: An engaged, motivated, proactive team that takes ownership for delivering results against the strategy. Terrorism: With the Westgate attack still fresh in our memories, it is clear that the risk of terror is real and affects us all. Solution : A collective, collaborative approach is required. Every citizen should own the security problem if Kenya is to significantly reduce its vulnerability to this threat. More vigilance at grassroots level, and between communities, is required.
Dr. Caesar Mwangi, James Mworia and Baiju Shah.

ABOUT LIAISON
Since 1981 Liaison has been at the forefront of risk and pension consulting in Africa. Through a comprehensive suite of service offerings, Liaison is wholly and exclusively engaged in supporting its clients in building and maintaining robust risk management and internal control structures. The value we create is driven through by the personal determination of our highly motivated and skilled staff in Africa.

www.liaisongroup.net Liaison Group Consulting, Liaison House, State House Avenue. P.O.Box 58013 - 00200 Nairobi, Kenya. Tel: +254 020 271 0181 +254 724 253 550 Fax: +254 020 271 0137 +254 020 271 0570/1 +254 735 330 669

Secure Business Life

NAIROBI KAMPALA DAR-ES-SALAAM MOMBASA KIGALI JUBA