Why boards want risk management to result in strategic opportunities
CFOs know a lot about risk management, and those serving on corporate boards might want to take the lead in that area.
The majority (79%) of 510 board members at organizations with greater than $1 billion in revenue said, over the next five years, improved risk management will be critical to both protect and build value, according to EY’s Global Board Risk Survey released today. Why? EY points out that not only did the COVID-19 pandemic create risk, but it has also accelerated risk in areas including supply chain — think global semiconductor chip shortage—and even cybersecurity attacks, for example.
Although 83% of board members said the impact of market disruptions is increasing—just 18% believe that their organization has highly effective disaster response and contingency planning. However, 64% of respondents said their organization can manage traditional risks, such as changes in regulation.
But areas of risk can also open doors to greater opportunities, according to the report. The directors named changing consumer habits and technology disruption as top strategic opportunities, and companies are making that pivot. For example, in a recent conversation about Prudential Financial’s enterprise-wide transformation, CFO Ken Tanji told me the pandemic has both accelerated the company’s capabilities in using automation in underwriting life insurance policies and has made consumers more receptive to using the technology.
So, how can organizations become more effective in risk management? EY’s report offers the following tips:
– Assess risk and strategy through a long-term lens. When scenario planning, 43% of risk management leaders look more than five years into the future; and 28% look ahead five years when setting their organization’s business strategy.
-Align risk management priorities with business strategy to create strategic opportunities. About 55% of board members said risk management “often struggles to keep pace” with business strategy changes.
– Focus on emerging, atypical, and external risks. Just 39% of board members said their organizations are prepared.
But to effectively use this tips, an organization must adopt a data and technology-driven approach to risk management, according to EY. That means legacy systems with data quality issues may hold a company back.
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