Seeing is believing. A picture is worth a thousand words. Show me the money!

They may be timeworn clichés, but these phrases are still nuggets of wisdom for the risk practitioner when implementing or expanding an enterprise risk management (ERM) program.

Since risk is an abstract concept, one of the biggest challenges in ERM implementation is communicating effectively to staff at all levels of an organization so they can understand:

What exactly risk is;
The range of dangers and opportunities presented to the company by certain events and activities; and
How controls can help manage those risks.

Some risks are relatively simple to understand, such as physical risk of loss from fire, flood, or collision. Other risks, such as those dealing with financial matters, specific businesses, or market risks may require more explanation and illustration.

Further, it can be tricky to describe a company's risk appetite—risks it will and will not take—to highlight high-priority or more urgent risks, illustrate trends over time, and show future projections.

How does a company demonstrate the costs and benefits of various risk management efforts? How can meaningful reports be developed to share information for a wide range of stakeholders? How can effective strategic decisions be made without fully understanding all the variables involved?

Seeing is believing. Data visual aids, such as charts, graphs and dashboards, are key tools in rolling out an effective ERM program. Sophisticated risk management software, with the capability of producing interesting, complex graphics, is being developed daily and is in high demand. Graphics give increased depth and meaning to data reports, and can be used for showing relationships, process or business cycles, and hierarchy structures.

Here are some tips and tools to effectively illustrate risk-related concepts, communicate ERM themes, and bring risk management ideas to life.

Depicting Data

Risk managers may gather thousands, even millions, of pieces of information that will be used for later analysis. How many customers do we have by product line? Who are our competitors? What is the dollar value of particular types of potential loss events? The list of questions, and data collected as a result, is endless.

How best to present large quantities of pure numbers depends in large part on what the data is and what information is highlighted. Traditional tables, simplistic charts or graphs can be dry, boring, hard to interpret and/or confusing. They may not adequately engage or keep the attention of the intended reader or viewer.

Here is how to prevent “data burnout” in your ERM audience:

Choose the right graphic. Don't just extract a table or chart from an Excel spreadsheet for an ERM report or PowerPoint presentation if you are trying to convey a trend – a line graph, pie chart, or “hill diagram” of the data may better illustrate your point, at once.

If you are using a program such as Excel that automatically extracts data into different charts, run a view of the data through several types of charts before picking your format. If using a line or bar graph, experiment changing the scale and sizing of your X and Y axes, the scale of the units used, and the time period for the data selected. Changing basic factors in your graphs has tremendous impact on their visual effects, and helps your message hit home.

Make the chart or visual engaging to the viewer. A little extra effort goes a long way. Design a graph or chart with pictures and images, using “info-graphics,” rather than just lines.

Consider the front page of USA Today. Each day, the paper shows a statistic or survey result in a graphic that not only totals the numbers, but also provides images that relate to the topic studied. This allows the reader to see at a glance what the subject of the study was, and whether further reading of the details is worth their time. Magazines and internet news sites such as www.good.is are also great sources of ideas for displaying survey data creatively. Try incorporating clip art, pictures, cartoons and dramatic colors into reports and PowerPoints, as appropriate to the audience.

Make the summary chart, graph or table interactive. Summarize key information as a common ground for all users, but allow more interested readers to drill down into detailed data. Many new ERM-specific software programs generate reports that permit users hands-on, in-depth reviews of archived data. Other programs permit hyperlinking of data, annotations, and references to other documents or websites that further explain the originally cited information.

Revealing Relationships

There are many visualization methods to show relationships between variables. They run from the familiar pie chart to complex, three-dimensional models that look more like artwork than a depiction of scientific data. ERM leaders need to be familiar with the many different ways to show relationships between data and choose the best for the message being conveyed.

For example, scatter plots, bubble charts and geographic scatters can help analyze and find correlations in factors or data that do not have a direct or linear correlation or where less obvious groupings may exists. Bar graphs are excellent tools to compare /contrast groups of data against similar criteria, such as cost or time.

In addition, the following tools should be in any ERM resource box.

Turn Up the Heat. One of the most common ways to visually display risk is through the use of a heat map. This chart shows the relationship between probability of a risk occurring on one axis of the graph against the magnitude or severity of the risk happening on the other axis. The chart itself is color-coded, often on a spectrum of yellow, green and red, showing less severe and least probable risks typically in a green area. Mid-range risks in terms of likelihood and severity are usually in a yellow-shaded area, and high-impact, high-frequency risks plot in a “red zone.”

The main benefit to displaying risks in this fashion is that it's easy to see at a glance how risky one particular activity, program, or project is. If the risk is in the upper right corner of the chart, in red, it is typically more of a danger, and the company may take action to decrease either the size or frequency of the potential loss. Heat maps also help prioritize amongst risks of varying degree. It is a fundamental risk analysis tool.

Experiment with Mind Maps. A mind map is a diagram used to show how words, concepts, activities, or other factors relate to a central common phrase or idea. There are many different ways to construct a mind map, typically using a combination of graphics such as boxes, bubbles, or images, connected by lines and arrows. The key to the effort is to capture all ideas relating to a topic in a creative, non-linear manner. It is more than a note-taking activity; it shows relationships visually that may otherwise be hard to describe. The process of mind mapping encourages brainstorming, thinking about less-obvious connections, and helps an individual or group to structure and classify ideas in new ways.

Mind maps can be particularly useful as part of the ERM risk identification and analysis process. Group mind-mapping, guided by a facilitator comfortable with the tool, encourages people to expand their thinking about certain dangers and opportunities, drivers, and mitigating factors of risks. It encourages “out-of-the-box” thinking about relationships enterprise-wide, and provides a loose structure for organizing risk-related information into a visual format that can easily be shared and appreciated by many.

Use Timelines to Show Trends. Risk professionals are often historians. They look at events in the past to help understand trends and help identify current weaknesses or liabilities. Timelines are easy to develop, and are ERM crowd-pleasers. Plotting past actions graphically on a timeline often helps trigger memories and gives a contextual framework in which to compare multiple events. Events can also be shown in light of important internal or external market, political, social, or other forces. Sequences in a timeline may indicate causes and effects of loss. Timelines can also be made interactive, with detailed links to related material.

Go with the Flow. Flowcharts are easy-to-understand diagrams showing how steps in a process fit together. For an ERM program, they can simply show even the most complex relationships. They may document current working practices, depict existing and recommended control processes, and establish the paths of information or communication streams. They can show distribution and marketing paths, and can be quite useful in analyzing risks relating to suppliers and vendors. If you are trying to improve your company's processes, one of the most important steps is to sell the ideas to management. Good flowcharts sell themselves.

Seeing the Forest through Decision Trees. There are many complex diagrams and models to help visualize elements of corporate strategy. But one of the best, time-tested tools for strategic analysis is the decision tree. Decision-tree analysis is useful to people choosing among various courses of action, when the option (or progression of choices) will ultimately lead to some uncertain consequences.

Participants can view graphically the costs and benefits, or likelihood and probabilities, of certain events or actions as a “tree,” where results of a choice are at the end of a decision path or tree “branch.” Decision trees provide a highly effective structure in the ERM process, and they help form a balanced and complete picture of the risks and rewards associated with potential actions.

Once these basics are mastered, continue to seek out fresh, interesting ways to depict risk. There are many more ways to get your ERM message across than you may think. For an interesting list of alternatives, see the Visual-Literacy.org e-learning website, and its dynamic chart “A Periodic Table of Visualization Methods.” With today's technology, it's easy to tailor information to actively engage and inform ERM program participants over time.

Special Reports /

Seeing Is Believing: Visualizing Risk for ERM

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