Building the Optimal Risk Management Function in an Unpredictable Environment

In our inaugural issue of Confidence Matters, we explore one of the core principles of our business: risk management.

It’s often viewed as a compliance checkpoint instead of an opportunity to support an organization’s growth. But, some of the most successful companies embrace risk management to establish stakeholder confidence and support revenue growth.

We all face risk in various forms: It’s there when we decide to make a strategic change, take on a new partner, expand into a new market, or adapt for a new venture. Effective risk management enables us to not only take on these risks but empowers us to face them with confidence — because confidence matters.

So, here’s to the risk-takers, and the risk managers who support them.

Risk and opportunity are two sides of the same coin.

The pandemic dramatically changed how people view risk, providing a valuable test of resilience and preparedness. It was a pivotal moment across all industries and sectors.

• But what have the most successful companies done in response?
• And how are they building the risk management function within their operations to ensure their ability to succeed for the long-term?

Risk Management as a Growth Enabler

Those who are shifting the perception of the risk function from cost center to growth enabler are changing the game within their firms, triggering broader operating efficiencies and productivity benefits in addition to ensuring the business can be protected to take advantage of opportunity.

Complex risk and shifting operating priorities have dialed up the need for a strategic approach to risk management.

While businesses may be risk aware and embrace the need to prioritize risks, their approach is often not fully realized due to resourcing issues.

It’s hard to align human resource to focus on risk management when there are often more pressing issues.

However, companies that have demonstrated an ability to be agile and not just survive, but succeed, in a changing business environment are more likely to have a solid risk management strategy, plan and resource partners to enable that level of agility and success.

Effective risk management will protect your reputation, longer-term growth objectives, and build deeper resilience within your business.

What is a risk management framework?

Risk management is a 365-day, 24/7 commitment. A risk management framework structures the way a business identifies, assesses, and mitigates risk.

A supporting risk management framework is a model and set of guidelines employed by businesses to identify, eradicate or reduce potential risks.

This includes guidance on how to manage various types of risks, including financial, operational, strategic, and compliance-related risks.

Best-practice risk management comes from having a wide and connected view, removing siloes and working across the business.

How to build an optimal risk management function

Whether you’re starting from scratch or revisiting an existing approach to scoping your risk management function, a sensible starting point is a prioritization of risks — essentially, agreeing on the four to five strategic risks for the executive team and the risks that can be operationally managed within the business.

These will typically center on your people, your property, your general liabilities, and your product liabilities.

Having the right brains and technical skills around the table is central to optimal risk function design. Involving specialist partners at the early stages of the conversation can help guide critical thinking and ensure the team is going down the right path.

Businesses often bump into issues and gaps in a self-developed enterprise risk management framework when it’s generic and high level.

That’s where specialist advice from an experienced risk expert asking the right questions can be advantageous.

Although there is no one-size-fits-all solution that provides an optimal risk management function design, a cross-team and collaborative approach to assess risks from multiple angles is beneficial.

Can AI be the answer?

The answer is… maybe. While AI will drive transformation across many businesses and industries, it is realistically in the early stages of discovery and testing, and only partially understood.

AI can be leveraged to create custom risk profiles, tailoring risk assessments to specific needs and vulnerabilities, enabling the business to focus valuable resources and investments on the highest priorities.

Today and likely for the near future, AI applications are more likely to play a partnership role with risk managers rather than replace the role altogether.

The fundamental value of risk management

Rather than being an onerous task, a well-designed risk management function can be a game changer, motivating smart collaboration across teams and using risk as a growth strategy.

Ultimately, there is no ‘one-size-fits-all’ solution that delivers an optimal risk management function design.

Getting closer to the risks inside and outside the business, identifying clear priorities, and implementing a coordinated risk mitigation approach enables businesses of all shapes, industries, and sizes to navigate our complex environment.

Prioritizing strategic risks to enable timely decision-making and resolution is the key to success.

By taking a strategic approach to managing risk, decision-makers can be empowered to take risks and capitalize on opportunities with a clearer view of upside and downside.

Key Takeaways

• Rapid change, digitization, and unpredictability has called for a rethink on the scope and design of risk management functions within businesses and organizations across the globe.
• While most businesses are generally risk aware and embracing the need to prioritize key risks, the approach for many is not where they need it to be, often due to resourcing challenges.
• Designing the optimal risk management function takes a range of considerations into account in terms of structure, enablement, and focus.
• Distinguishing risk management from insurance remains a key challenge and opportunity. Understanding and assessing risk within the business determines the scope of insurance required.

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