A SAGE Test for Risk Management

When I was a Chief Risk Officer, I needed a method to help me quickly decide how to allocate my time and resources. The result was the acronym “SAGE.”

“SAGE” stands for “Survive, Achieve, Grow, and Expand.” The order is important, not just to make the acronym work, but because that is the order in which you, as a risk manager, should consider the priority of your actions and your budget.

Survive

Survival of the organization should be its first priority. If the organization does not survive, it has no chance of fulfilling the purpose for which it was created. If it does not survive, growth and expansion are moot.  Recall the safety speech that the airline flight attendant gives concerning the air mask:  

“In the event of a cabin depressurization, a mask will fall from a panel above you. Place it on your face (etc.). If you are traveling with people who need assistance, such as children, make certain you put your own mask on before assisting others.”

This last part of the announcement reminds us that, if we don’t survive, we can’t help others.

Achieve

The next step is to achieve the goals and purposes of the organization. Remembering why the organization was established in the first place and achieving those goals is secondary only to the survival of the organization. For a stock company, it is likely making a profit and returning value to the owner or shareholder.  For a mutual insurance company, it might be to provide an open insurance market for its owner and customers.  A captive’s purpose might be to guarantee a market for insurance coverage for its owner.  But it must survive in order to do so.

Grow

Growing the organization may or may not be important. Growth in this context means organic growth: increasing the activities you currently are performing, adding members or adding policyholders, and similar increases in what the organization is already doing or the customers with whom it is already dealing. Growth only makes sense if the organization is already attaining its purpose, meeting its goals, and is reasonably assured of survival.

Expand

Expansion occurs when the organization takes on new territories, lines or types of business, or other activities outside its current scope of activities.  

There is no clear line between growth and expansion. But that boundary is not as important as the fact that neither should occur until the organization is fully meeting its objectives and is assured of survival.

I used this as the test for activities within the organization.   Into which category does the activity fall?  “Survive” activities get first priority for my time and budget.  “Accomplish” gets the next level.  “Growth” activities are only allocated resources if the first two are being accomplished.  “Expand” tasks get what is left after the first three are satisfied.   It is a quick, simple way of prioritizing that others can understand and accept.

During one turnaround situation, I only concentrated on the “Survive” activities. What little time and budget I had left I allocated to “Accomplish” activities.  “Growth” and “Expand” were ignored.  Even then, only the most important “Accomplish” activities were performed: some had to wait.  It worked, and the company went from losing 20 cents on every dollar of sales to break even in two years.

I have watched other companies expand, but ignore survival, only to falter, and in a few instances, fail.  

“SAGE” for this purpose is copyrighted by Grover Edie MBA, FCAS, MAAA, CERA, CPCU, ARM, ARP

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