What are the most common risk management challenges in your field?

Often “risk management” is confused with “compliance.” Yet, risk management is about finding the ideal point on the risk/reward curve, ie, the level of risk you are willing to take for a particular reward. Thus, we have to know the level of risk we are able of taking or build such capabilities to earn the related reward we are seeking. Risk management is about building capabilities to meet and achieve our mission and objectives and complete our strategies. And there is no such thing as a strategy, without understanding the risks inherent in such a strategy. So risk management and strategy formation are two sides of the same coin. Ultimately, risk management is the central capabilities of setting and achieving organizational strategies.

Regulatory risk is a GIFT for the astute risk manager. First, it is easier to get buy-in to spend resources addressing regulatory compliance challenges from management and the board because, well, there are clear penalties for not being in compliance! Regulation usually follows loss events. So, you typically have a better data set of loss frequency and impact, and you have better identification of stakeholders. Importantly, regulatory compliance is seen as a "cost" -> so the risk manager has a huge opportunity to deliver competitive advantage to the business overall by delivering effective compliance for less than peers. But wait, it gets better!... Regulatory requirements create barriers to entry to new market entrants = your opportunity.

Having no risk is the biggest risk 🙂 To understand my point, I meant the lack of awareness of risks is the biggest risk. 👉 Failure to use appropriate risk metrics. 👉 Mismeasurement of known risks. 👉 Failure to take known risks into account. 👉 Failure in communicating risks to top management and failure of management to respond to risk. 👉 Failure in monitoring and managing risks. Do you agree with my view?

Both risk management and regulatory compliance are essential for organizations to operate effectively and responsibly. While risk management focuses on identifying and mitigating potential risks, regulatory compliance ensures adherence to legal and ethical standards. Together, they help organizations minimize operational disruptions, protect their reputation, and maintain the trust of stakeholders.

Common risk management challenges in Banking Inadequate Communication Communication among teams, departments, and banks is difficult. This occurs for various reasons, including competitiveness, poor relationships, and lack of coordination. Poor Prioritization The corporate culture in banking tends to be focused on business priorities over critical risks . New Technologies The pandemic drove the adoption of new technologies, and many banks had to recognize that they could no longer manage their ERM programs with spreadsheets and primitive solutions. As a result, systems and process deficiencies emerged in some areas, such as cybersecurity and third-party governance.

Ensuring the quality and security of data is a pervasive challenge for risk managers across diverse fields. Data quality, encompassing accuracy, completeness, consistency, and timeliness, is fundamental for robust risk identification, analysis, and response. In response to this challenge, risk managers must proactively implement comprehensive data governance frameworks. This involves not only leveraging reliable data sources and tools but also adhering to best practices in data encryption, backup, and recovery. By fortifying their approach to data quality and security, risk managers contribute not only to the accuracy and efficacy of risk management processes but also to the resilience and trustworthiness of the organization as a whole.

In banking, the sanctity of data is capital. A robust data governance framework isn't a luxury—it's vital, ensuring precision in data's accuracy and timeliness. Reliability trumps volume: every data source must be meticulously vetted. Modern tools, infused with AI, preemptively detect inconsistencies, offering more than management—mastery. Encryption is non-negotiable, with the strength lying in vigilant key management. Regular, geographically diverse backups, paired with seamless recovery protocols, shield against threats. In essence, for risk managers, data isn't just about compliance—it's the backbone of institutional trust.

📌 Example: A bank uses customer data to identify and assess risks associated with fraud and money laundering. If the data is inaccurate or incomplete, the bank may miss important warning signs and be more vulnerable to financial losses. 👉 as a result: 🔹1. Data quality and security are essential for effective risk management. 🔹2. Poor data quality and security can lead to inaccurate risk assessments, ineffective risk mitigation, and increased exposure to cyberattacks, fraud, and litigation. 🔹3. Risk managers need to implement data governance frameworks, use reliable data sources and tools, and adopt best practices for data encryption, backup, and recovery.

Community and regional depositories (banks and credit unions) struggle specifically with loan data quality due to antiquated core systems. They lack the data necessary to fully quantify the credit and interest rate risk associated with the loan portfolio. How they receive the data, monitor the data and make decisions based on that information. It’s due to a mixture of different systems that do not perfectly communicate with one another. The LOS may not integrate with the core or the servicing system. This leads to data being found across various data bases and not easily at the chief credit officers fingers that would allow them to concisely understand the risk of what they own. #bank #credit #lending #risk

In the ever-evolving landscape of risk management, professionals face a multitude of challenges. One of the most pressing issues that risk managers across all industries must grapple with is the assurance of data quality and security. In an era where data drives decision-making and underpins risk assessments, any lapses in data integrity can have far-reaching consequences. Data quality is the bedrock of effective risk management.It encompasses the accuracy, completeness, consistency, and timeliness of the information that risk managers rely upon for identifying, analyzing, and responding to risks. Inaccurate or incomplete data can lead to misguided risk assessments, poor decision-making, and increased vulnerability to various threats.

Stakeholder participation in the process is more important than just engagement. They need to understand the importance of risk management and implement it in their daily activities. Everyone manages risk in some way and should take accountability. However, often the message from the top doesn't filter down or gets lost in translation. Moreover, I find that people get these objectives but are not given the tools, trust or time to act accordingly.

One of the greatest challenges that risk managers face is to bring the members of the Board of Directors on the same page and help them see beyond business goals. Taking measures to manage risks can protect an entity from financial and reputational damages. This is a similar issue faced by compliance departments.

Stakeholders are shareholders, regulators, credit rating agencies, auditors, customers, competitors and prospective investors. When it comes to engagement, the first 4 are considered important while the last 3 are generally ignored by the institutions. Risk manager understands the importance of every stakeholder, right from managing the risk, ensuring accuracy of the numbers and calculations, analyzing both current and prospective risks, presenting the details to the board and regulators, verifying the stated financials and carrying out the fudiciary duty of the other stakeholders in a responsible manner. Risk manager is a core function of every institution which provides assurance to all the stakeholders.

This approach does not rely on traditional risk management tools such as heat maps, risk registers, risk frameworks or risk mitigation plans. Instead, it focuses on transparent decision-making, savings on financing and insurance costs, and allocation of ownership for risk taking. This shift represents a significant change in the way risk management is understood and practiced within organizations.

👉 As a professional risk expert, I recommend the following 4-point approach to stakeholder engagement: 🔹1. Identify and prioritize key stakeholders : Not all stakeholders are created equal. Some will have more influence on the organization or project, and/or will be more affected by risks. 🔹2. Communicate clearly and frequently: Keep stakeholders informed of the risk management process, progress, and outcomes. 🔹3. Use appropriate communication channels and formats: Tailor your communication to the specific needs of each stakeholder group. For example, some stakeholders may prefer to receive written updates, while others may prefer face-to-face meetings or webinars. 🔹4. Be prepared to manage conflicting interests.

Amid my roles, uncertainty and volatility were omnipresent. Navigating such terrains demands more than just risk assessments—it requires a strategic agility. Uncertainty, while ambiguous, is an invitation to innovate; volatility, a test of resilience. It's less about predicting every shift, more about readiness. Scenario planning isn't theoretical—it's our compass in uncharted waters. Contingency plans transform from "what-if" documents to actionable playbooks. Constantly monitoring the risk environment isn't routine—it's vital. Embracing this dynamic duo, we not only weather storms but also harness their winds, propelling projects to success.

Uncertainty and volatility are part of the profession. There would be no risk if these didn't exist! It's important to be robust yet flexible in approach and to regularly reassess risks & potential impact on objectives. It's also important to solicit input and feedback from across the organisation, the external environment and look out for regulatory, industry insights etc.

D. Ignoring organizational politics: The existing culture and politics within an organization can significantly impact the success of risk management initiatives. Understanding and navigating these dynamics is often a challenging task for risk managers.

La gestion des risques a été inventée et développée a la base pour faire face aux incertitudes. Il ne s'agit pas d'un défi à mon avis mais plutôt de la matière première pour le processus de management des risques ( définition risque en ISO : effet de l'incertitude sur les objectifs). Ainsi l'incertitude fait partie même de la définition du risque).

Risk should always be taken into a context - the risk environment sets the stage for action. Whether we are merely reacting or being pro-active, risk culture, appetite, and tolerances are important parameters identifying crucial boundaries. The velocity and pervasiveness of any risk, emerging or otherwise, must be taken into consideration to evaluate the impacts defining the course of controls and strategies. In an uncertain and volatile environment, remember there there is always an upside and downside considerations in any risk.

E. Inadequate technology and tools: Another challenge that risk managers often face is the lack of proper technology and tools to efficiently process, analyze, and report risk data. This includes the inability to use data analytics, machine learning, and artificial intelligence in risk management due to lack of resources or technical expertise. Overreliance on outdated methods, such as risk matrices, heat maps, and qualitative risk assessments, can also hinder the effectiveness of risk management. Instead, modern risk management requires a shift towards more quantitative methods and the use of sophisticated software to handle complex risk simulations and calculations.

Resource constraints has always been a challenge in my work, lack of technology and tools hinder proper management of risk as reliance is put on manual methods which do not really take into account emerging risks but based on the initially developed risk register as a result risk maturity gets affected

Budget constraints is a common issue for most companies. They want to do more with less. However, criminals are doing more with technology. If an entity relies on manual tools to manage its risks, it's already one step behind from criminals. Businesses must see, not only the coat they pay, but the value they get when investing in appropriate tools

Resource constraints in risk management are like trying to play soccer game with a two players—possible, but tough. It's all about prioritizing what could hit hardest and what’s most likely to occur. Efficiency is king. You make do, stretch every dollar, and sometimes get creative with what you’ve got. Leverage is the name of the game—using what you can, when you can, to mitigate the risks without breaking the bank. Tech and Gen AI if used can make a few resources be a lot productive than many resources without tech and AI.

Exactly that is the reason why risk management should be closely located by the top management. Wouldn't It be tragic to experience risk materialisation and significant costs related with it, because Risk Management Officer didn't have access to a high performance PC or wasn't able to attend course in Power BI, for example... Is it more important to have expensive vehicles for field representatives of a company, or is it more important to have high performance equipment and access to best in class courses?

Emotional intelligence will help risk managers see behind specific behaviours of people, and manage to encourage a positive attitude.

Risk culture is the ultimate driver of risk management. And risk culture is predominantly a human factor, therefore it is fundamental to get this right as everything else ultimately follows. And you do that by championing risk management and aligning it with your objectives, ensuring accountability and rewarding or recognising positive behaviours.

Remember in the original Charlie and the Chocolate Factory when his dad was out of work because of industrial automation, and at the end they brought him back to maintain the machines? There will always be the need for people, and the impact that we have on managing risk and making decisions is often underestimated by society, politicians, business owners, senior managers, executives, and analysts working with data. It is easy to say a risk event was the result of unavoidable human error or they simply didn't follow a policy that was put in place, but what are we doing to support our people and improve risk culture from the ground up? If you really think about it holistically, even artificial intelligence had to be made by a human being.

People are critical to managing risk... and ensuring they understand the areas of concern and how it can impact them and the company in the areas efficiency and time spent on tasks, reputational impact on viability and going concern. When people understand how what they do ties into the overall processes they tend to be more open to strategies for risk management and improvement. Communication how all the parts fit together will impact the people component of risk management for any company

Human factors can be both an asset and a liability. On one hand, they can offer valuable insights through intuition or creativity; on the other, they can compromise the effectiveness of risk management strategies by introducing biases, errors, or even resistance to risk-mitigation measures. It's crucial for risk managers to be attuned to these human aspects, leveraging them where they add value and mitigating their impact where they introduce vulnerabilities. This entails fostering a culture that is risk-aware and inclusive, inviting diverse perspectives to better understand and manage risks.

Consider the impact of emerging technologies and global trends. Things like AI, climate change, and geopolitical shifts can redefine risk landscapes overnight. Stories of risks that paid off or flopped can be gold mines of learning. Risk management isn't just clinical; it's an art steeped in human history, with lessons from past blunders and triumphs. Also, don't underestimate the power of cross-industry insights. Sometimes a strategy from a completely different field can be just the wildcard needed to shake up stale practices. Lastly, remember the importance of personal well-being for risk managers. The job's intense, so managing your own stress and staying sharp mentally is vital.

For the Digital Financial Services Industry, Security remains paramount as cyber threats target the sensitive financial information. Robust measures like encryption, multi-factor authentication, and secure data storage are imperative to thwart unauthorized access. The perpetual evolution of cyber threats necessitates a continuous commitment to staying ahead in the cybersecurity domain. Operational risk poses another formidable challenge, encompassing system outages, software glitches, and technical hiccups that can disrupt services and compromise user experience. Moreover, the ever-changing regulatory environment, including AML and KYC regulations, demands meticulous compliance efforts to avoid legal pitfalls and maintain user trust.

I think a few other things that affect risk management are 1. the fear of change and improvement 2. Culture 3. Tone from the top of the organization If these are not considered risk management cannot be effective

The most common risk management challenges of modern times include the complexity of business, geopolitical events, cyber threats, disruptive innovation like AI, regulatory shifts, changing social demographics, ESG risks, supply chain issues, fraud concerns, inadequate processes, and failure to use appropriate risk metrics. The reality is that any of these risk drivers may trigger other risks, only adding to the complexity of the risk management. Risk management is a continual process that needs regular attention to ensure that risk decisions are reviewed and addressed primarily where specific documented triggers are met.

Culture, Culture Culture! Just like location is paramount in Real Estate, if the culture doesn't value risk management then risk management won't be part of the culture! It has to be exhibited daily, in actions beyond words and shiny brochures or handbooks, to ensure its importance. Culture is the lifeblood of any organization and will determine what's important while risk management policies and procedures are akin to the veins and arteries that circulate to every corner of your organization. In the end, the rewards of better risk controls provide better engagement, efficiency and risk mitigation which improves the bottom line.