What is a SAGE© Test for Risk Management?
Consulting Actuary, Grover Edie, Explains
Written by Grover M. Edie, MBA, FCAS, MAAA, CERA, CPCU, ARM, ARP
Effective Risk Management decisions require a balancing of limited time and resources against the risks confronting the organization. When I was a Chief Risk Officer, I created an acronym 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 it is the order in which a risk manager should consider the priorities of your actions and your budget.
Survival of the organization should be its first priority. An organization has no chance of fulfilling their purpose if it does not survive. Should this happen to an organization, their growth and expansion are moot. Consider the safety speech that airline flight attendants announce about air masks:
“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.
The next level is to achieve the goals and purposes of the organization. Do not forget why the organization established in the first place. The answer to this question 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.
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 make sense only when an organization is attaining its purpose, meeting its goals, and relatively assured of survival.
Expansion occurs when the organization takes on new territories, types of business, or other activities outside its current scope of activities. Expansion is moving beyond the organization’s initial scope of operations. There is no clear line between growth and expansion. This is an important boundary only after an organization is fully meeting its objectives and is assured of survival.
Using the SAGE Test
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 completely.
SAGE can be a useful tool for risk-based decision making even for profitable organizations.
“SAGE” for this purpose is copyrighted by Grover Edie MBA, FCAS, MAAA, CERA, CPCU, ARM, ARP