We’ve discussed it before in a previous article exploring risk visualizations at a high-level, but it bears repeating…most of us, close to 2/3 in fact, learn best through visual cues like pictures, charts, graphs, or diagrams of some sort.
The heat map has traditionally filled this role for communicating risk information, but even those who are more supportive of using them will admit their shortcomings.
This was the subject of a recent conversation where I was brought in to help a company find the right ERM software. They were slowly realizing that heat maps are no longer the go-to they once were.
Some people still use them in the context of a single risk with no color coding. While this can be somewhat helpful in knowing where a risk currently stands in an effort to prompt further discussion, they are incomplete. Hans Læssøe explains it like this in an article published on LinkedIn:
Risk maps won’t capture the imagination of operations because [they] can’t begin to tease out the “how.” And if risk management isn’t helping with the “how,” it’s not really helping at all.
The fact is, as my conversation with the company showed, decision-makers need more – they need to see risks, how they relate to each other, and more details than just a spot on a page. However, the company discovered another big issue when they tried plotting multiple risks on one heat map – it just turned into a cloud of dots, rendering the visual completely unhelpful and hard to discern.
Again, from the same article, Hans states:
The focus on individual risks means that management and Boards are not provided with any level of consolidated impact and often lack insights in the perfect storm of A, B, and C, when they are given information of A, B or C.
These are constructive statements about the drawbacks of heat maps. Other observers offer some rather vitriolic comments about heat maps, which is something I purposefully stay away from. Irrespective of that characteristic, the increasing number of conversations on the topic is a positive sign that my client and many others are starting to realize that heat maps aren’t necessarily the best (or only) way to go.
This inevitably begs the question:
What can ERM professionals do to create risk visualizations that ultimately help decision-makers?
Research has clearly shown the value of visuals in conveying information as they can have a more immediate, deeper impact for the person you’re communicating with.
You may be wondering…this is an article about risk visualizations, but I am not including visual examples. What’s going on?
Well, I thought about it but decided that the whole point of this article is to enable your creativity. I feel providing examples would hinder that.
Robust risk visualizations can also be extremely helpful in prompting in-depth conversations and a deeper dive on the part of both risk management and executive decision-makers.
The crucial thing for helping you get there is rooted in a concept we discuss fairly regularly. Similar to risk identification, any risks included in a visual must be linked to a specific business or strategic objective.
Otherwise, you’re simply handing over a list of risks, but this time in a (kind of) pretty presentation. As mentioned many times before, risk lists simply regurgitate what everyone already knows and is not risk management.
What do leaders need to know about risks?
What decision-makers really need to know is the kind of impact will certain risks have on a specific objective and how sure we are that this could happen. This information should enable them to drill down (or vice versa – see the big picture) and understand different ways of looking at the risk(s) and the resource allocation that needs to happen.
Let’s say the company’s primary strategic goal is to “increase customer count by X.” Executives and other decision-makers will need to know the risks associated with this goal.
Making it clear which risks are associated with a particular strategic and/or business objective is crucial for making risk visualizations work. Your visualization will need to show where they need to focus their business decisions and discern which risks are acceptable and which ones are not.
Another element of visualizations involves putting risks into categories. Doing so enables you and decision-makers to see in which specific areas or categories your risks reside. From here, it will be easier to tell which risks are being well-managed and which ones require some time and effort to get to an acceptable level.
Making the visuals
There are so many tools out there to help you develop custom risk visualizations. Gone are the days when you are stuck with only the charts in Excel and figuring how to make that irksome bubble chart or how to get the shading gradients behind the heatmap right. As I explained to the company, tools like Power BI, Tableau, and others can be invaluable in creating compelling visuals, provided you have the right raw data at your fingertips.
Whichever way you develop your risk visualizations, the most important trap to avoid is telling executives and business units that “sorry, this is the only way you can get it.” Being open to using different tools and being creative are the two most important things to consider when reporting risks visually.
Again, I’m hesitant to provide examples because something like this should really be customized to the company. Also, don’t be discouraged if it takes a few tries to get it right – like so many other things, trial and error are par for the course for ERM.
However, when you find that sweet spot for your company, executives and decision-makers will be impressed at how ERM can provide valuable insights for strategic decision-making.
What kind of custom visuals beyond heat maps have you created to better convey risk information?
We invite you to share your thoughts on this dynamic subject. Please feel free to leave a comment below or join the conversation on LinkedIn.
And if your company is struggling to visually convey risk information to enable better decision-making, please don’t hesitate to reach out to me to discuss your current status, your goals, and what tools can be harnessed to help get you there.
