As a result of the increasing pressure and the global crisis, some EU countries, such as Greece, Ireland and Spain, needed to find money to support their financial services and to provide essential public services. After several attempts to bail out some of these countries, the EU zone still finds itself struggling to come out of the crisis, hence we are where we are now. Last week EU leaders met in Brussels at the summit for economic integration, with the aim of reaching an agreement on the "fiscal compact treaty" - ready to take effect by the end of March 2012.

Its main provisions include: a cap of 0.5% of GDP on countries' annual structural deficits; "automatic consequences" for countries whose public deficit exceeds 3% of GDP; tighter rules to be enshrined in countries' constitutions; the EU's permanent bailout facility - the European Stability Mechanism (ESM) - to be accelerated and brought into force in July 2012; the adequacy of 500bn-euro (£427bn; $666bn) limit for the ESM to be reassessed; the Eurozone and other EU countries to provide up to 200bn Euros to the International Monetary Fund (IMF) to help debt-stricken Eurozone members.

European leaders say 26 out of 27 EU member states have backed a tax and budget pact to tackle the Eurozone debt crisis. The 17 countries that use the Euro have all agreed to the new deal. Nine other countries have said they will sign up, some pending consultations with their parliaments. Hungary originally said it would also remain outside the deal but has now changed its stance. Only the UK has said it will not join in with Prime Minister David Cameron stating his obligation is to protect key British interests, including its financial markets.

Risk implications

So are there risk implications for the UK for using its veto? If I were the PM’s Chief Risk Officer, what would I have done differently and how would I have advised the PM on the best way forward?

Many people are talking about the fact that Britain risks being isolated in the Eurozone on account of her decision, and so I will start here by defining the term ’risk’. Risk is defined as “the uncertainty of outcome, whether positive opportunity or negative threat, of actions and events. The risk has to be assessed in respect of the combination of the likelihood of something happening, and the impact which arises if it does actually happen” (HM Treasury Orange Book).

If risk is the uncertainty of outcomes, then risk management is simply an effective way of managing uncertainty of outcomes of decisions to the delivery of a particular objective or set of objectives. Every decision, regardless of size, will have risks (threats or opportunities) associated with it. It is vital that these are recognised and managed to minimise losses and maximise the chances of success.

The PM’s objective at last week’s summit was to protect key British interests, including its financial markets. I expect that someone, somewhere would have systematically gone through a result-oriented Risk Management process and advised the PM on the implications of his decisions, exploring both the threats and opportunities in taking such a stand.

My recommendation to the PM’s team would be to explore the following steps in addressing the uncertainty facing Britain as a result of the veto decision:

Step 1: Clarifying objectives, priorities or targets (SMART) - know what the key objectives are and how our country is currently working to meet them.

Step 2: Identifying and assessing risks of delivering the government objectives to the electorate and the public at large. This involves the identification of the potential event (threat or opportunity), its trigger(s)/source(s) and an understanding of likely impact/consequence(s) of such event(s) materialising.

Step 3: Evaluate options risk outcomes in terms of both the quantitative and the qualitative impact to the country, then record the outcome of the analysis/evaluation in a risk register (log) using various risk identification evaluation and assessment techniques.

Step 4: Suggest risk treatment action(s) – how are we going to address the threats or opportunities identified? What treatment action(s) do we need to implement in order to minimise, avoid, or transfer the triggers or consequences of a negative risk event, or maximise the consequences of a positive risk as a result of such a decision? Will there be a cost for implementing the action plan(s)?

Step 5: Assign risk owners, delegating treatment action(s) owners - confirm the quality of the action plan(s). Is it minimising the probability of occurrence or minimising the consequences of the event materialising for a threat or is it enhancing the probability of occurrence or maximising the impact of an opportunity? Is there a specific date for reviewing these actions?

Step 6: Implement, monitor and report the treatment action(s) – project managers are advised to implement, monitor and report the effectiveness of the risk treatment action(s). Also, they are encouraged to get their team members involved in reviewing their risk register at their meetings frequently.  This will ensure that the information in the risk register is timely and accurate.

One of the reasons major strategic decisions fail is because the steps listed above might be done either as a tick-box exercise or simply to comply with the prescribed methodologies or gateways. The other possible reason is that risk events are poorly described, thus populating the risk register with garbage; and also the inability of project managers to accurately articulate what risk is comes into play. The good news is if the PM and his team accurately apply these steps, Britain will be in safe hands once again.

By Joachim Adenusi MSc FIRM ACII (UK)

Joachim Adenusi is a fellow of the UK Institute of Risk Management (IRM), a chartered insurer, Director at Inspirational Risk & Management Solutions (IRMS) Ltd and the UK Public Sector Risk Manager of the Year 2009.