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Developments in risk management

Posted By IrmsaInsight, 23 October 2013

As a relatively new discipline, Risk Management continues to be a constantly researched subject matter – with many experts doing their best to reflect on the effectiveness of this role and predict its future orientation especially during this era of economic turmoil in the market place.One such attempt was by Steve Culp, Managing Director at Accenture Risk Management. In an article published in February 2012, titled: "The-changing-face-of-risk-management” Culp gives feedback on Accenture’s research on developments around Risk Management. He highlights eight trends that he believes will be shaping Chief Risk Officers’ outlook, at least in the immediate future.

Culp outlines 8 business and technology trends that shaped risk management in 2012 as follows:

  • Entrenchment of a good Risk Culture – by having a set of guidelines and expectations forming part of the groups’ objectives/vision to improved appropriate risk management process within an organisation. A number of organisation are beginning to have internal training for staff on risk management and discussions are aimed at ensuring that all employees understand their role in managing risk within the organisation.
  • Risk process that expects more complexities in the market place – The economic markets are introducing new and complex challenges daily. From competition from ‘non-traditional competitors’ to more robust legislative environment – it is no longer a case of ‘business as usual’ for many corporate. To manage the business going forward, companies need risk management capabilities to support scenario planning and risk mitigation, and they need information based on more than just a finance or process perspective. They need to be able to look at different markets, customers and product lines in a more sophisticated manner.
  • A more global shift (non area specific processes) - Another change that is taking place is that risk management best practice is no longer concentrated in the usual regional centres – with moves into new and unchartered territories, the risk discipline has to deal with factors around new cultures in the new markets and a workforce that is only linked through technology. The challenge is ensuring consistency around the risk process and entrenching risk buy-in in areas that are different in terms of doing business, that have different market conditions and that have different maturity levels when it comes to risk management. 
  • Technology - A challenge the need to integrate, align and harness the technologies in a way which will better serve the business and deliver the outputs and insights required to outpace the competition. This is not only true for the risk management aspect of an organisation, but every aspect of business from product development to customer services.
  •  Better alignment between Chief Risk Officer and Chief Financial Officer roles (In Financial Institutions) - the trend is toward tighter alignment and collaboration between the CRO and CFO and as a result more consistency across finance and risk. The increasing levels of investment and focus on risk management, puts more pressure on risk officers to demonstrate the benefits of the process by linking the outcomes from risk management processes more directly to business outcomes and tangible cost reductions.                                                                                 Further trends in Risk Management are as follows:
  • Fostering of better partnerships internally and externally - Given the recent level of investment in risk management, it will is critical for Risk Managers to demonstrate the benefits from risk management projects more directly to business outcomes and tangible cost reductions. To achieve this, many organisations are more actively seeking collaboration with the risk function and distinct measurements of the risk roles in new projects and day to day business. Through, a sometimes ‘forced’ collaboration – companies attempt to ensure clear and measureable risk process that everyone gets involved in.
  • A risk orientated strategy to the changing regulatory environment – across the globe there has been a change in ‘regulatory waves’ forced by the recent economic tough times, the new trend is implementing integrated risk management framework more suited to meeting the strategic business needs that need to take into account an ever changing regulatory environment. Many organisation are clear linking the regulatory function as part of the risk management process.
  • Harmonisation and linking of operational processes to the bigger role of Risk - Many companies are looking to consolidate vendor applications, particularly in areas such as data warehousing, the applications themselves and reporting or business intelligence environments to the bigger risk framework. In this way, issues seen as process issues that usually have a small degree of risk have a clear risk assessment criteria to ensure that ultimately they do not snowball and create risks at a later stage.                                                                                                                   Successful organisations are looking beyond regulation and cost-reduction during these tough economic times. They are viewing risk management as a strategic element of their value chain, these organisations know that technology alone is not going to deliver the desired outcomes. That is it through critical success factors such as strong risk culture and meaningful collaborations that sustainable growth and innovation is achieved. Ultimately, Risk management is about creating a function that measures the outlook and enables business executives to move forward with confidence that they will realise their vision.                   

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