What makes a good risk management function in 2024? | Insurance business America
Risk “an opportunity to do something better”
Risk management news
By Kenneth Araullo
In an ever-evolving landscape characterized by rapid technological advances, expanding global markets and changing geopolitical dynamics, the nature of risk management is being redefined.
According to Neil Hodgson (pictured above), managing director of Risk Management Consultancy at Gallagher, companies across all industries must overcome a maze of operational, financial and strategic challenges to protect their assets, ensure compliance and promote resilience for sustainable growth.
The current and future operational risks identified by Hodgson highlight a rapidly changing environment in which companies face increasing complexity and uncertainty. Supply chain disruptions and geopolitical tensions have increased competitive pressures and pushed companies to seek robust risk management strategies that ensure resilience and agile response mechanisms.
Faced with these challenges, companies are recalibrating their risk management approaches to better adapt to volatile market conditions. This recalibration includes a mix of improving internal capabilities and adopting hybrid models that leverage both internal and external expertise and emphasize the adaptability required in today’s uncertain landscape.
Hodgson highlighted the central role of a comprehensive risk management framework to guide organizations in identifying, assessing and mitigating a range of risks. This framework is particularly important as companies seek to diversify, minimize costs and explore new growth avenues, which can lead to greater complexity in their risk profiles.
A “downside” of risk
“Companies should ideally take a closer look at their risk profile at this time and consider how it will help their business move forward,” Hodgson said. “While some of us view risk negatively, there is also the flip side that risk enables opportunity and growth. By considering the range of risks that exist in your organization, you can more easily identify what could go wrong and have the opportunity to take action before problems arise. This is an opportunity to do something better. Ultimately, it is important to consider each risk in context. This aspect is often easily overlooked.”
According to Hodgson, the effectiveness of a risk management function varies significantly between large corporations and medium-sized companies, with the latter often having more advanced and integrated approaches.
This disparity highlights the urgent need for companies to closely align their risk management practices with their operational realities, particularly given the resilience tested by the recent pandemic.
“The pandemic has changed the way people view risk and is a valuable test of resilience and preparedness,” he said. “It was a pivotal moment across all industries and sectors. Moving from assessing risk on paper at a strategic level to actually getting into the business and solving the problem directly shifted the process from reverse engineering once a problem has arisen to understanding why that problem might occur and the Looking for a way to fix this problem.”
Maintaining the risk register
As an important tool in strategic risk management, the risk register, when properly curated, can streamline priorities and promote a collaborative approach to harnessing risk for growth. However, Hodgson warns against the pitfalls of an overburdened risk register and argues for a focused list of high-priority risks that facilitates targeted discussion and action.
“It is not uncommon to see a risk register with, say, 50-100 entries. This should outline the 10-15 highest priority risks simply and effectively so that key stakeholders understand the risk at the root cause level…Refocusing to a maximum of, say, 10 high priority items can be game-changing. “It’s focused, it presents the important details and the discussion is focused and prioritized,” Hodgson said.
In addition, Hodgson advised on the importance of an external perspective in developing an effective risk management framework. All too often, companies falter because they rely on generic, home-grown plans that fail to address specific needs and complexities.
Involving experienced risk management professionals early in the process can significantly improve the strategic depth and practical relevance of a risk framework.
“Companies often encounter problems and gaps in an ERM they have developed themselves [enterprise risk management] Framework if it is generic and high level,” Hodgson said. “They may misunderstand the premise and lack a robust methodology for building the framework and ultimately how to use it.” This is where expert advice from an experienced risk expert who asks the right questions can be beneficial. “
“We have seen examples of companies going online, printing out a plan or risk framework template, putting their name on it and sending it out. It is not fit for purpose. At best it ticks a box, and while people like to tick boxes, they are saving an issue for a later date,” he said.
What makes a good risk team?
Effective risk management requires a comprehensive and connected perspective. By breaking down internal silos and fostering cross-functional collaboration, risk teams can gain a comprehensive understanding of the risks their organizations face, assess their significance, and determine how to effectively prioritize them.
Hodgson emphasized the importance of a collaborative approach within the team, which includes building robust relationships across different levels of the organization and combining strategic agility with the ability to respond quickly.
“Companies are currently operating in a highly dynamic environment where owners, operations managers and executives must juggle a complex agenda. “The conversation around AI and ChatGPT is a moving picture, and the use case is still not fully understood,” said Hodgson.
“People and workplace changes present heightened risk at this time as the war for talent continues, employees gradually return to the office and flexible working models are fully integrated into business operations,” he said. “Inclusivity, diversity and mental health awareness are on the agenda and central to employee satisfaction. Talent retention and leadership will be key to executing business plans and ensuring longer-term success.”
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2024-04-08 18:33:43
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