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In response to global trends, risk management is moving out of the back office and into the business mainstream.
In this paper, Accenture looks at the trends driving this move, and how to overcome the challenges financial services companies face in turning risk management into an enabler of high performance.
Once positioned largely as a compliance necessity and a cost of doing business, risk management is now moving into the business mainstream. This trend is being driven by the dual effects of depressed profitability combined with an increasingly demanding regulatory agenda.
It is particularly evident in the financial services sector where return on equity has plunged from 24-26 percent to single digits in many cases. It is also gathering steam in other industries where the pressure to differentiate oneself in a cutthroat global business environment is driving enterprises to take on more risk. Better risk management capabilities are becoming essential as a result, and the risk management function is moving from the back office to the front office.
As risk management moves into the front office, it is beginning to lose its defensive stance and look for ways to add value. It is now seen as providing the business with the safety net it needs to pursue innovative strategies with greater confidence.
Consequently, chief risk officers have grown in importance and influence. In the wake of the financial crisis, there are signs that they are aligning more closely with the CFO’s agenda, providing more consistency across finance and risk.
A common challenge is embedding the right kind of risk management culture in the organization. Clear and well-communicated guidelines and expectations from the top down are a key first step, paired with training.
Responsibilities and tasks need to be more stringently allocated, and compensation and reward systems must be aligned with risk and compliance rules.
As risk management grows in importance and the world becomes more complex, risk managers are demanding better risk analytics that will help them feed the business the information it needs. This need for better, faster information and insight is in turn driving investment.
All of the new demands being made of the risk function can only be met with the help of technology. As a result, new ideas, tools and capabilities have entered the market faster than ever before and the cost of keeping up with the technology, creates another challenge that will have to be overcome.
In the wake of the recent financial crisis, organizations are looking to transform the way they manage risk. Pressures on margins, the high cost of technology and burgeoning regulation means that firms are searching for competitive differentiation by moving from compliance to performance and adopting more effective and efficient risk management practices.
Technology is playing a key role as an enabler of this transformation, driving demand for new system architectures and computing excellence. However, technology alone is not going to deliver the desired outcomes. Culture and collaboration are also critical success factors.
Ultimately, high-performance organizations will look beyond regulation and cost-reduction and view risk management as a strategic element of their value chain, delivering sustainable growth and innovation.
Steve Culp is the managing director for Accenture Risk Management. Based in London, he has more than 20 years of global experience working with clients to define strategy and execute change programs across risk management and the broader finance function. He has responsibility for leading our Risk Management group across all dimensions, from setting the strategic direction through enabling the full breadth of our corporate capabilities. In addition, Culp leads our efforts on large scale transformation projects across Finance and Risk for our largest financial services clients. Prior to his current role, he was responsible for Accenture’s Finance & Performance Management consulting services for global banking, insurance and capital markets institutions.
Christophe Mouille is the managing director of the Accenture SAP group for Europe, Africa, Middle East and Latin America. Based in Paris, he specializes in complex and global system-driven transformation programs, in finance, supply chain and logistics. With 22 years of extensive experience developing end-to-end solutions, Mouille steers cross-industry clients on their journey to high performance.
Karsten Ebersbach is a senior director for Accenture Technology and Risk Management in Austria, Switzerland and Germany. Based in Frankfurt, he specializes in guiding capital markets clients in their efforts to develop and design target risk and finance architectures that support regulatory and business-specific measurements, management and reporting requirements. With his broad industry and consultancy experience, Ebersbach helps financial services clients on their journey to high performance.
November 22, 2011
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