Other parts of this series:
Collaboration is a key challenge for risk managers hoping to strengthen risk-readiness. Can they make gains by improving cross-function collaboration?
In the previous blog in this series, we discussed some of the roadblocks risk leaders face in gaining access to the kind of clean, high-quality data needed to support new and powerful smart technologies. Lack of collaboration among functions is one of the biggest impediments to creating robust datasets that can be trusted across the enterprise to support risk decision making.
Collaboration is essential to identifying and mitigating risk, in addition to other aspects of risk management. In strategy development, for example, major initiatives such as expansion into a new market or the launch of a new service should be evaluated in the context of both the risk and the reward. To do this, risk leaders should build strong relationships and secure a seat at the table whenever new business strategies are being evaluated—not after the fact.
“As financial services firms look ahead, they should approach their risk landscape with a holistic and fresh view, prioritize what they know and prepare for what they don’t. Though you can’t change the risk landscape, you can change what is in your sphere of control.”
Cyber threats offer another example. The changing nature of cyber risk means the risk function needs to collaborate closely with IT, but this collaboration is not always evident. In fact, our 2019 Global Risk Management Study found only a small majority (55 percent) of surveyed risk managers believe other functions recognize the important role risk management plays in driving positive outcomes. Increased collaboration can raise awareness of how risk managers can add value to the enterprise.
Part of the problem is the difficulty of clearly delineating risk responsibilities. In many financial services firms, the risk function is siloed and often positioned with too much of a back-office orientation. While it is important to have clear ownership and responsibilities, the function should work more in tandem with the multiple lines of defense and manage risks in a more timely and proactive manner.
Improving risk and finance collaboration
For the past 10 years, our Global Risk Management Study has indicated a desire among risk managers for closer collaboration with their colleagues in the finance function. However, only 22 percent of 2019 Study respondents say risk and finance input jointly into corporate strategy and enterprise risk management (ERM) steering, which is in line with the 23 percent that said the same in 2017.
There has been progress. In our latest study, 75 percent of risk managers said they have a close working relationship with finance, compared with only 61 percent in the previous study. This close working relationship should continue to grow if both functions input jointly into ERM steering. Those that have done so report greater resilience to some risks. For example, 48 percent of risk functions that do not collaborate with finance on ERM say there has been an increase in the impact of strategic risk in the past two years. In contrast, just 37 percent of risk functions that collaborate with finance on ERM say the same.
Conclusion: Define the sphere of control, collaborate and continuously evolve
The risk functions we surveyed realize they should do more to keep pace with the risk environment and to make other functions aware of the critical value they can add. But they are doing a lot: Collaborating more closely with the finance function, improving their understanding of the threats posed by digital technologies, deploying new analytical tools and broadening the range of data they can access.
Risk functions can’t change the risk landscape, but they can change what is in their sphere of control. This means striking a balance, making needed changes while responding to mounting cost pressures. Rather than just reducing costs using traditional technologies, risk leaders should actively redefine their operating model and boldly deploy new technology with eyes wide open. This can help risk functions anticipate, assess, and mitigate new and emerging threats while providing the added value to help their businesses build sustainable growth.
Click here to download the 2019 Global Risk Management Study report.