Risk & Compliance Managers across the globe are challenged by a rapidly changing and ambiguous external environment that continually creates unexpected Opportunities and Risks. However, when visualized as a part of an active Business dynamic, Risk, is more than just being a chance of loss, rather, risk has a potential for culminating into an Economic Opportunity. As we are in the last quarter of 2018 and while the entire world is talking about the fourth Industrial Revolution Industry 4.0, we identify three leading Risk oversight Tools & Techniques that Risk and Compliance Officers worldwide can take to seize Opportunities and at the same time avoid the loss possibilities inherent to the Risk.
Real time, Actual and Transparent information on the Company’s Risk Profile and Risk Appetite
Companies take risks in order to grow and compete in the marketplace, yet they need parameters for how much risk they are willing to accept. Having a systematic method of cascading this Risk appetite into decision-making processes at the level of Operations is what determines the success of the overall ERM Strategy. Risk Managers need to be aware of the Company’s key Risk exposures, which collectively are referred to as the Company’s Risk profile. This implies understanding the major Risks that it faces now and contemplated to face in the future, and accordingly taking Risk Mitigation actions. Although the universe of risks that a company faces may be almost limitless, a company’s risk profile is the composite (and analysis) of the most pressing risks that impact strategy and reputation.
Communication between Compliance, Risk and Audit teams around Strategy, Risk, and Performance
Risk Compliance and Audit teams are often times disconnected when it comes to Risk Management and this results in ERM residing in Silos, increasing the probability and likelihood of poor and expensive decisions. The management of risk in today’s often-extended enterprise is complex, with executive teams typically transferring ownership of risks to specialist functions. But examination of recent risk disasters reveals that diffuse accountability for risk management is a major problem. it is critical to ensuring a successful and sustainable strategy. More specifically, risk culture is a critical subset of overall corporate culture defined as the behavioral norms inside a company that drive both individual and collective risk decisions. A well-balanced risk culture can unleash innovation, and deter fraud and abuse.
Ensuring Transparent and Dynamic Risk Reporting
The entire purpose of ERM is to have Risk reports that reach the right people at the right time as as to enable taking informed decisions. Hence, Risk Reporting should not be limited to the metrics mandated by external disclosure rule, but they should also include all the information the Senior Management needs to assess the Company’s risk exposure. Additionally, Reporting should be dynamic, taking into consideration the velocity by which existing Risks are changing and new Risks are emerging. A report on Risk Mitigation actions and whether they actually decreased Risk Exposure, is also of high importance here. The success or failure of risk mitigation is often underreported, leaving Risk Managers with a limited understanding of whether or not risks are effectively minimized over time. To address this challenge, the process needs to have the ability to clearly differentiate between risks that can and cannot be mitigated.
Risk Management process has become more agile and innovative, because of the fact that business operations are getting more and more tech savvy. In an operational environment primarily characterized by Volatility, Uncertainty, Complexity and Ambiguity (VUCA), the organizations need to adapt to a more agile and innovative framework for assessing and mitigating disruptive risks, that can have a significant materialistic impact on the business performance.
By adopting the above three practices,Risk and Compliance Officers can really have a chance to step up from their role and are actually contributing to the Company’s overall growth objectives. For a sustainable Business, it’s all about having Transparency and Confidence in Risk, Compliance and Governance and identifying the Opportunity in Risk, no matter what the size and Industry of the Company.
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