To win in the market place, organizations must out-innovate and out-execute, and that means moving faster, entering new markets, being more accessible to clients, launching new products and pricing more effectively.
Those are ultimately the levers that every business has, but as businesses innovate and compete, by default they must take on more risk. So the only way for them to succeed in that high innovation environment is by having better risk management capabilities.
Consequently, across industries there is a movement of risk management activities and focus from the back office to the front office, from compliance and cost control to differentiation. This movement of risk management into the mainstream helps the organization play offense more frequently. In other words, businesses are beginning to do things with risk that add value rather than simply limiting the business or protecting the business from “risk”.
Recently, one Chief Risk Officer (CRO) made a striking analogy involving a high level tightrope walker and a safety net. He said that risk management is about providing that net, enabling business executives with the confidence to execute their vision but that ultimately the walker should never have to use the net.
Knowing that a robust risk management system is in place in this way turns a potentially defensive stance into an offensive confidence to move the business forward and take the steps necessary to push ahead even when the path is complicated or unproven. Taking risks are part of everyday business, taking unmanaged risks is where troubles arise.
Here are 8 business and technology trends that we believe will shape risk management in 2012:
- CROs and CFOs. Prior to the recent financial crisis, there was often a lack of consistency between CROs and Chief Financial Officers (CFOs) across process, systems and data. In many FIs (financial institutions) the two sides were talking a different language and unintentionally creating challenges for the organization with conflicting priorities and messages. Today, some aspects of the crisis have helped to push the agendas together and the trend is toward tighter alignment and collaboration between the CRO and CFO and as a result more consistency across finance and risk.
- Culture. Many organizations leave risk appetite as a concept and fail to translate this into limits and specific direction. A risk culture is a set of guidelines and expectations from the top down on appropriate risk taking and decision making. Both the CRO and Chief Human Resource Officer should determine the proper training and discussions needed throughout the FI to ensure that all employees understand their role in managing risk in the organization.
- Complexity. To manage the business going forward firms 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.
- Geographical shift. Another change that has taken place is that risk management best practice is no longer concentrated in the usual regional centres. Accenture’s 2011 Global Risk Management research shows that more than 90 percent of Latin American firms have existing ERM programs in place, compared to only 52 percent of European companies and 60 percent of North American ones. Also, 90 percent of Latin American firms foresee significant or moderate increases in risk management pending, compared to only 82 percent of companies in North America and Asia Pacific.
- Technology.A significant challenge facing virtually all FIs is 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. Over the years, data volumes along with regulatory and business requirements have driven FIs to take a leading position in technology, developing new features, new automated solutions, more sophistication and complexity covering more countries and more business activities. However, these requirements have also progressively contributed to a dramatic increase in IT costs as demands have become more complex and the resulting systems more diverse.One important technological change designed to meet the increasing demands is in the way that the application architecture is built. Traditionally, the application landscape was built layer upon horizontal layer. So each layer carried a function and interfaced with the other layers through transformational rules, lead times, short cuts, complex reporting rules, and so on. However, that horizontal structure is changing to something much more vertical. Consequently, individual pieces of information will be able to be gathered from the bottom up, elevating the reporting lines and data governance where necessary.
- Partnerships. This is beyond the traditional in-house versus outsourcing debate. Given the levels of complexity faced by FIs, firms are likely to have little choice than to partner in new ways, including traditional competitors and peers, as well as, IT and change specialists. Given the recent level of investment in risk management, it will be critical for CROs to demonstrate the benefits – and tie the outcomes – from risk management projects more directly to business outcomes and tangible cost reductions. To achieve this, many organizations are more actively seeking collaboration and reusing some aspects in a “utility sense.”
- Regulatory. Compliance and regulation have always been key drivers in terms of defining budgets. However, this has resulted in many organizations making significant investments in projects for specific regulations only to have an ROI based on ticking the regulatory box. Having done that for four or five regulatory waves, it’s now time to implement an integrated risk management framework more suited to meeting the strategic business needs.
- Harmonization. Many FIs are looking to consolidate vendor applications, particularly in areas such as data warehousing, the applications themselves (e.g., the risk calculation engines) and reporting or business intelligence environments.
Pressures on margins, the high cost of technology and burgeoning regulation mean that firms are searching for competitive differentiation by moving from compliance to performance and adopting more effective and efficient risk management practices. Technology is playing a key role as an enabler for this transformation driving demand for new architectures and high-performance computing. However, technology alone is not going to deliver the desired outcomes. Culture and collaboration are also critical success factors.
Ultimately, successful organizations will look beyond regulation and cost-reduction and view risk management as a strategic element of their value chain, delivering sustainable growth and innovation.
Read the entire conclusions paper for a deeper look into these trends. Nearly 400 firms from across the globe were surveyed to develop this information – is your firm going to be making changes to its risk management processes or culture? Do you agree with these findings?
*Other contributors to this article include Christophe Mouille, the Managing Director of the Accenture SAP Practice for EMEA and Latin America, and Karsten Ebersbach, Senior Director, Accenture Technology, Risk Management, for Austria, Switzerland and Germany.
NOTE: Originally published by Accenture in 2011. Copyright 2011 Accenture. All rights reserved. Reprinted by permission. For more information about Accenture’s Risk Management group please visit www.accenture.com/riskmanagement.