Risk Managers must facilitate a balance between risk & reward

It is crucial that the risk function thinks commercially and not just analyse from a downside perspective.

Risk managers must strike a mindful balance between relaxing controls with the aim of creating added value for an organisation and not obstructing business opportunities often or quickly enough. It is crucial that risk managers are not seen as stifling opportunities. The key is to facilitate discussions across the organisation on what risks it is willing to accept and those which it wants to manage down.

This issue can be challenging for risk managers which sometimes seems like walking on a tightrope. There will always be situations where risk managers do not raise an alert quickly enough. A business is there to be profitable and deliver value for the shareholder, and this means that we all need to instil a degree of commerciality, but if risk managers become too commercial, they will not be able to deliver on their main responsibilities within the organisation. The risk function’s job is to highlight risks and make sure that the organisation has a framework in place to deal with these risks in a considered and balanced way. Ultimately, the decisions around whether something is worth doing for commercial reasons should be with senior management, but risk managers need to help facilitate that discussion.

Organisation must balance the cost and reward of any risk
Any decisions over relaxing controls are down to individual risk managers based on the culture and environment of the organisation in which they work. Certainly, one needs to be aware of the dangers of being gulped into a governance structure which is totally focused on compliance. Maybe due to increasing demands compared to the importance of strategic and organisation risk management. Essentially, this is not about relaxing controls but rather about ensuring effective controls are in place on a cross-functional basis. Risk managers should act as facilitators rather than blockers. It is pertinent to keep in mind that there is no such thing as zero risk. So this means that any organisation must balance the cost and reward of any risk and related mitigation options. That decision must align with the risk appetite for each situation, which will, naturally, vary by organisation and its internal and external environment.

Risk Managers as business enablers
When expecting that risk managers need to think more commercially, we essentially mean that this includes looking at both upside and downsides. In the past, risk managers were more inclined towards business prevention rather than enablers. It is crucial that this perception changes and that risk managers are seen as help and not there to stop people from doing stuff. Risk management does need to think more commercially, to look at the risks but also the opportunities regarding some of the key business decisions and how the business is operating.

Some things go wrong and risk managers have to try to prevent that, but business operations, investment decisions and commercial decisions often have an element of risk. So, risk managers have to balance risks and the opportunities which may arise, otherwise the business won’t grow. It is all about striking a balance and trying to be seen to be still adding value even when flagging risk. 

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