In a recent article I introduced Promise Theory and its application with respect to compliance. At a high level, Promise Theory puts forward the idea that obligations are an imposition with a cost or penalty for non-compliance. For every obligation there must be a corresponding promise to satisfy it. A promise is more than a desire, it is a publicly declared intention.
Saying this in terms of compliance, promises are requirements imposed on an organization which are met by corresponding commitments called promises. Promises are the specifications for how compliance will be delivered supported by management and technical systems and of course people and culture.
In this article we explore the concept of promises as business assets similar to equipment, buildings, or even intellectual property. Organizations use assets to generate value for stakeholders by the creation of products and services. In a similar way, organizations make and keep promises to generate stakeholder value through the creation of compliance.
Can viewing promises as assets help organizations create better outcomes from their compliance efforts?
Let's find out.
Asset/Promise Valuation
The value of an organization can be determined by taking inventory of its assets and subtracting its total liabilities. This is a good indicator of a company’s net worth.
In the same way, a compliance valuation can be conducted by taking an inventory of all the promises an organization has made and subtracting its total obligation debt (i.e. liabilities).
This is a measure of a company’s compliance strength or in other words its ability to meet all of its obligations. Servicing obligation debt is important but just like business assets we need a return on that investment that exceeds just paying off the liability.
Asset/Promise Lifecycle
Promises also follow a life-cycle similar to assets simplified here as four-stages:
Creation - promises are specified, designed, implemented, and made operational
Utilization - promises are kept while the obligation persists
Maintenance - preventive, proactive, routine, and emergency work is performed to sustain promises (ex. maintain control effectiveness).
Re-commitment / Retirement - new commitments are made to meet changed obligations or promise is no longer needed.
Over time assets and promises tend to grow in complexity and cost. Life-cycle Management is an important capability to ensure that underlying systems and controls perform as required to meet stakeholder obligations and create desired value. Lean and risk management practices are helpful to reduce waste and improve efficiencies not only for assets but also for systems that implement promises.
Asset/Promise Principles
We can adapt principles of asset management and apply them to the management of promises:
Promises exist to deliver value for stakeholders.
People keep promises - so an effective promise management system will rely on people’s knowledge of obligations, compliance expertise, motivation and teamwork.
Promises must be managed for the life of the obligation.
Promise keeping should be risk and evidence-based.
Promise Management is on-going and requires continuous improvement.
Promise Management is multidisciplinary and cross functional.
Promise Management requires significant stakeholder involvement.
Asset Valuation for Promises
When promises are viewed as assets different questions become available that may uncover areas of improvement that might otherwise been overlooked:
Do you know the size and nature of your obligation debt - liabilities?
Do you have a complete list of all your commitments associated with both mandatory and voluntary obligations - have you assessed your assets?
Are your investments in programs, systems and controls generating sufficient compliance value for your organization - are your assets producing a return?
Do you know what your overall compliance risk is - are your assets more than your liabilities?
If you are unsure of your answers to these questions the following steps can be followed to conduct an asset valuation for compliance of your organization:
Take an inventory of all active promises (compliance commitments) including supporting policies, programs, systems, and controls.
Take an inventory of all compliance debt (compliance obligations)
Calculate obligation exposure by matching your promises with your obligations (do promises cover all obligations?)
Calculate compliance strength by evaluating the effectiveness of policies, programs and systems to meet promise objectives. This will include operational risk.
Gather and analyze the voice of the stakeholder to validate value creation.
Considering promises as assets may be useful in helping organizations visualize compliance as a necessary good (just like assets) rather than a necessary evil. This will bring with it all the best practices and corresponding benefits of asset management to the domain of compliance.
