Key Accelerators To Transform Your Enterprise Risk Management Framework

Key Accelerators To Transform Your Enterprise Risk Management Framework

Adapting operating models to new market dynamics is becoming a real challenge for firms, regardless of industry, size or region. When it comes to risk management, the historical reactive practices are no longer valid, for organizations wishing to preserve business integrity and economic value for the future. Defining an operating model that enables risk executives to provide the right level of support to businesses and senior stakeholders is becoming an imperative part of organizational change across markets.

In the recent Verdantix global corporate risk management survey, 52% of respondents said that they had fully implemented an enterprise risk management framework, with 34% having partially implemented one. While this shows an increasing recognition of the relevance of the risk management function and the strategic value it generates for firms, the picture is not equal in all sectors and industries. The level of adoption of such frameworks is substantially higher in heavily regulated sectors such as banking (85%), insurance (75%), oil and gas (63%) and healthcare (60%), compared with non-heavily regulated sectors such as construction (43%), food and beverage (39%) and retail (25%).

This difference is reflected in the operating model set-up of businesses in different sectors, and the relevance of the risk management function in each firm. Based on the results of our survey, on average, 83% of financial institutions have a dedicated chief risk officer (CRO) or a role with similar responsibilities. By contrast, non-heavily regulated sectors such as construction (7%) and retail (17%) show markedly less presence of these executives.

For firms looking to transform their enterprise risk management operating models, the following key accelerators should be considered:

1. Associated technology: managing risk in real-time has become a necessity rather than a nice-to-have luxury. This was reflected in the Verdantix survey, where 40% of respondents mentioned their intention to increase their risk budget allocation by 1% to 25% within the next three years. This will allow firms not only to improve their existing tech-risk ecosystem, but also to enhance their overall risk management practices. Establishing a digital maturity journey roadmap is key to support the risk management function in providing the right level of oversight across multiple domains (see the upcoming Verdantix Strategic Focus: Linking Risk Complexity To Digital Requirements).

2. Risk talent: the true value of diversity becomes apparent when individuals can provide different perspectives while facing the same situation. The complexity of emerging risks requires the presence of multidisciplinary teams who can connect the dots across domains and provide a unified view of risk. Specialization is key; however, due to the increasing demand for risk specialists, firms are starting to enhance and expand their internal functions through collaboration with external consulting firms.

3. Risk governance: it is now time to renew the Risk Committee and redefine its role. Establishing a dynamic risk management approach requires all governance bodies to think and act differently, be open to change, and understand new market trends. Traditional 'quarterly' risk reporting sessions should be replaced by more dynamic oversight, supported by real-time data that enable senior management to make better decisions. The role of a firm’s risk executive should be seen as that of an internal advisor who supports the business and its members in making better decisions, rather than as an internal gatekeeper.