Managing Risk in Extraordinary Times: Strategy for High Performance

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The current financial turmoil highlights the dire consequences of inadequate risk management capability. On the other hand, Accenture research shows that a broadened, better integrated and aligned approach to risk management is not only a protection against risk, but also helps provide the competitive edge that enables high performance. Accenture helps clients overhaul their risk management capability and outlines steps to find the best strategic risk management model for your company.

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In the past, risk management functions were a ”quick-fix” response to problems or regulatory requirements. However, recent casualties in the finance industry highlight the perils of this approach. In order to work, a risk management program needs to assess risk across an entire organization.

The groundbreaking Accenture High Performance Business research has identified a comprehensive approach to risk management as an indicator of high performance. It has found that leaders in the financial industry are twice as likely to have implemented advanced and integrated risk management processes and technologies over the last two years.

Companies are increasingly recognizing that a risk management program, incorporated into the strategy of a business, is a visionary tool that can help grow the company. It can build value by:

• Helping management direct capital to its most productive uses.
• Assessing the risk of investment decisions to increase operational efficiency.
• Improving relations with ratings and regulatory agencies.

Modern risk management has gone beyond mitigation, compliance and control. Its strength comes from its link with the strategy of a company. By providing managers with a risk-reward equation for every decision, it helps them make better strategic decisions to increase shareholders returns—and move to a higher level of performance.

Risk management and strategy come together in three core areas:

• Formulating strategy: This includes outlining the company’s risk culture, defining rules and regulations to manage its risk profile, and determining technology to capture, monitor and report risk.
  
  
• Managing strategic risk: Every business strategy has inherent risks that could include technological changes, new competitors or price fluctuations. Risk management uses advanced tools to identify and evaluate these risks and their long-term impact.
  
  
• Evolving business strategy: Risk management uses tools to evaluate different strategic options and this helps direct the company to potentially profitable paths.

The choice of a model for risk management is based on a continuum of risk management maturity. Companies have different risk profiles, and should determine the best model for their risk strategy. The model aims to achieve the following objectives:

• Compliance: Usually only a few areas of the business are assessed to ensure that they are adhering to rules and regulations. The model keeps the organization compliant, but vulnerable to risk.
  
  
• Value protection: This model begins to use more sophisticated tools to protect existing assets and shareholder value. It provides siloed views, but no overall risk profile of the company.
  
  
• Value enhancement: An independent risk committee is formed and standards are set to mitigate risk across the entire enterprise. This high-level model allows management to make insightful choices and therefore enhance shareholder value.

Companies would do well to consider whether their risk management program should simply ensure compliance, or be a visionary tool and take the company closer toward achieving high performance. Accenture recommends the following steps to determine your strategy:

1. Establish strategic guidelines: Determine what company stakeholders expect from risk management and outline the role of the risk management team.
   
   
2. Determine model directions: Determine how much risk the company is willing to take and the metrics and parameters to be used for analysis.
   
   
3. Choose the model: Determine key performance indicators to track the kind of risk being taken and reveal whether it is within the company’s risk comfort zone.
   
   
4. Perform gap analysis: Compare the company’s existing risk program (if it has one) with the new risk strategy and analyze what still needs to be done.
   
   
5. Design a strategic roadmap: Outline the actions needed to turn the strategy into reality and put the new program in place.

Contact us to embark on a journey to high performance through effective risk management.