How will you shape the future of Risk Management?

A futurist’s role is to help shape the future of something (risk management) in order to make it more relevant and valuable based on:

1. Its known shortcomings today so it becomes more relevant based on today and
2. the forecast changing needs of Risk Management’s market and environment in the future so that it maintains that high level of relevance going forward.

Here lie the two key challenges for risk management.

Dealing with the known shortcomings of today

We all understand and appreciate that the risk management profession can do better to serve the needs of today. The development in risk management practices and capabilities over the last 20 years has been rapid and profound. The focus of the global banking regulator in 1998 on operational risk management provided an impetus for huge investment in operational risk management in that sector and this kicked off a growth spurt for the next 23 years.

The discipline, at best, is therefore a young adult and having a teenager myself, they can be frustrating, difficult to understand and sometimes it’s hard to see the value add! Sounds familiar? As with a growing child we have to be patient, allow mistakes to be made and mature to the occasion. I believe the risk management profession is doing that and taking a futurist view can only help that journey.

There are many critics that seem to take pleasure in pointing out all of the things that are wrong with the profession. This is a shame. If they used their energy instead on sharing their vision for the future and aiding the profession to develop, we would all benefit far greater.

In addition, we can only mature as fast as our audience and customer (every employee in an organisation) matures. Our customer has to be brought along for the journey otherwise we will leave them in our dust and the profession will become equally as irrelevant by being out of touch with reality. It is a delicate balance.

So firstly to addressing a few of the current shortcomings to help form a view of the future.

1. Risk Management must become more aligned with Strategy and Objectives

Risk Management is often still focussed on the management of risk, in its own right. Given that “Risk” is the effect of uncertainty on objectives, risk and objectives should be inextricably linked. The risk management and strategy functions should be “best friends”. Risk Management should feed directly from strategy.

The future should see a much stronger linkage between risk and strategy and a focus on “Outcome Management” rather than “Risk Management”.

2. Risk Management must become a more integral part of the management process

Risk Management is often positioned as a standalone siloed function, somehow separate from the rest of the business. It is a department that is often seen as producing monthly historical risk reports and providing little forward looking value. Risk Management should be an integral part of the management process. For many “Risk Managers” our ultimate goal should be to “do ourselves out of a job”. At that stage you would have achieved integration with management.

The key role of an integrated risk management function is to:

• Support Decision Making at all levels of the organisation to ensure that decisions made:
  • do not place the organisation at unacceptable levels of risk
  • do not restrict the organisation from taking too little risk and thereby holding back its success.
  • are “optimal” in terms of maximising the outcomes to risk performance.
• Providing prompts for decisions to be made.
  • Where assurance is being provided that everything is OK, our risks are under control, the balance of risk and reward is ideal, risk management should provide that assurance to board and management.
  • Where everything is not ideal, risks are too high, risks are too low, risk management should highlight these issues so that management can make corrective decisions to bring the organisation back on course.

Risk Management should not sleep until “Everyone is a practising Risk Manager” and Risk Management is accepted as a normal part of Management.

Risk Management will no longer be the sole domain of risk committees and boards, it will be an integral part of each employee’s day to day life.

Dealing with the forecast changing needs of Risk Management’s market and environment

Risk Management is, or should be, an integral part of everything an organisation does. This means that:

1. The risks that risk management will be dealing with will change as business and society changes
2. The technology on which risk management is delivered will change
3. The expectations of risk management’s customers will change
4. The available data on which risk management is based will become more available and prolific

This leads to the high probability that the role of risk management will change as well as how it is delivered and integrated into the day to day operations of organisations.

Taking a look at two of the potential key themes for the future:

1. The advancement of technology

Risk Management needs technology, technology needs risk management! This relationship will undoubtedly dramatically shape the risk management of the future. The key focuses will be most likely be:

• How risk management will be delivered. As devices change so do does the ability of risk management to be delivered to the masses as and when required. Wearable devices provides the ideal channel to deliver risk related information (Alerts, Reminders, Guidance etc) to the person at the coal face, in the right format, quickly and timely and in a manner that should and will affect that person’s immediate and day to day decisions. In addition, risk management will become more automated and built in as an integral part of machine and device operation, whether it be driverless cars or drones.
• The capability of risk management to deliver will be greatly enhanced through the ability through such things as the Internet of Things (IOT), Artificial Intelligence and Machine Learning. The inverse of delivering risk information is to be able to collect relevant risk related information quickly and timely across a wide range of information sources. This will cover not just existing information sources but new ones, particularly in the areas of biometrics and continuous data scanning focussed on human behaviour.

The major impacts of these technologies will be that Risk Management becomes more real time and relevant to a much wider audience. It will no longer be the sole domain of risk committees and boards, it will be an integral part of each employee’s day to day life.

2. The data revolution

Linked directly to technology is the revolution in data. The “big data” wave did not really yield the revolution we expected as finding the use cases for the data so we could create intelligence was harder than first thought. However, in the risk field, the potential range of useful data is almost endless. The wide range of risks we face give produce enormous amounts of indicator data which if transformed into intelligence and used correctly will provide a much more leading and proactive view of risk, so giving us time to make much better proactive decisions.

One wonders if all of the data available for the development of COVID-19 was captured and used for a more immediate response that we might not be in the reactive firefighting situation we are now.

How to get more intimate with your Risk Controls

Controls are usually not well understood or managed.This often leads to a control framework that inadequately addresses risk, is not effective and is costly to manage and maintain.

Download our eBook to find out how you can build an optimal risk control framework

Risk management will need its data scientists in order to determine what data is and is not useful and how that useful data can be turned into intelligence which can then be used for a more proactive approach to risk management.

As the Director of Training and Research at the Protecht Group, the future of risk management excites me. The Protecht Group’s tagline is “Redefining the Way the World Thinks about Risk”. This is more than a stale marketing ploy, it defines everything we do. Risk Management is still fairly immature and is far from perfect but the past 20 years or so of development in the risk management field should be celebrated. We should however not sit on our laurels but keep pressing for the right future for this wonderful discipline of ours, Risk Management.

For that we need your help.

What is your idea for the future of Risk Management?

The Protecht Group is facilitating a series of complimentary bi-monthly Risk Management Futurist meetup webinars with the next session scheduled for 20 October 2020. Join us as we cover a range of topics from Opportunity Risk Management to using Artificial Intelligence to measure risk culture and everything in between.

Click below to register to the sessions and express your interest in presenting your vision for the future of risk management.