While governments and regulators have pushed the concept of risk management across sectors, academic evidence to prove the value of all this activity and associated cost is relatively sparse. In this Risk Coalition roundtable, the importance of risk management and its potential to add value to businesses was explored by a group of experienced CROs and risk professionals. This blog post delves into the key points raised during the discussion, highlighting the need for a shift in mindset and a change in the role of risk management in facilitating strategic decision-making.
Unlocking the value of risk management
While there is academic research suggesting a link between the maturity of enterprise risk management frameworks and the relative success of organisations, it is not clear whether this is a causal link. The discussion emphasised the need to move beyond viewing risk as a mere cost. By providing better insights and enabling informed decision-making, risk management can help organisations achieve their objectives more effectively.
Shifting perspectives
To demonstrate the value of risk management, organisations must change how they perceive and position their risk functions. One participant shared an example of rebranding the operational risk manager's role as operational risk advisors. This change in job title helped shift the perception of the risk management function away from being responsible for managing the organisation’s risks, to a function that provides valuable advice and guidance to the business. By aligning risk management with business strategy, organisations can foster a collaborative environment where risk professionals contribute to achieving desired outcomes.
The role of risk management in driving business strategy
Participants expressed the need to highlight the positive aspects of risk management, such as identifying opportunities and contributing to strategic decision-making. They also emphasised the importance of obtaining board support and fostering alignment between the board and the executive team to enable effective risk management.
By engaging with senior executives and aligning risk considerations with business objectives, risk professionals can provide strategic insights that support growth and profitability. The key lies in asking thought-provoking questions, challenging assumptions, and driving discussions that others might shy away from. Risk managers should strive to become trusted advisors who bring alternative viewpoints to the table, promoting cognitive diversity and breaking away from groupthink.
Ownership and accountability for risk
One participant argued that by having a risk department, you sometimes blur ownership of risk. So, a key value-add is for risk management professionals to support those who are accountable for risk. Education around risk management accountabilities – including board accountabilities – is key.
Board support and independent risk capability
To realise risk management’s full potential, boards must actively support the function. Consequently, there is a linkage between board effectiveness and effectiveness of an organisation’s risk management arrangements.
The risk function should be seen as a strategic advisor rather than a mere compliance activity. Boards play a critical role in fostering an environment where risk professionals can challenge the executive team safely, ensuring effective risk management across the organisation. Independent risk capability helps keep a check on the executive team's decision-making, promoting transparency and accountability.
Unthinkable risks and the role of risk management:
The discussion touched upon the concept of ‘unthinkable risks’ and the role of risk management in identifying and addressing them. These are risks that boards may not typically be willing to consider, such as culture – including board culture – related risks. Risk professionals should have the courage to hold a mirror to the organisation, challenging the status quo and highlighting risks that may not be readily acknowledged.
Contributing to success
The discussion shed light on the value of risk management and the need to move beyond a compliance-driven mindset. Risk management can significantly contribute to an organisation's success by providing strategic insights, driving decision-making and mitigating risks.
To unlock this value, organisations must recognise the importance of risk management, foster board support, and empower risk professionals to ask the critical or uncomfortable questions that lead to improved risk governance and business outcomes. By embracing the risk management function as a strategic partner, organisations can navigate uncertainty and seize opportunities in an increasingly complex business landscape.
Chris Burt is a co-founder of the Risk Coalition and a principal at Halex Consulting. In this blog, he summarises a Chatham House Rule discussion held on 8 June, hosted and organised by the Chief Risk Officer Forum (CRO Forum). The CRO Forum was set up by the Risk Coalition to provide an opportunity for risk leaders to exchange views and discuss matters of common concern. To find out more about the Risk Coalition and its CRO Forum, please contact the Risk Coalition Team.