INSIGHTS

Risk and Reward

  • November 06, 2018
 

Risk and Reward – why risk management is essential

Despite being under threat from the growing influence of compliance, a good risk manager is still an invaluable asset to any forward-thinking business.

Why bother with risk management? Most people are trustworthy, no one leaks data and the worst probably won’t happen. You might as well put your energy into worrying about something more fun, like a new blend for the coffee machine or an office dog.

If that sounds naive (stupid, even), that’s because it is. Risk management is a crucial part of any forward-looking business. When you add in how fast regulation is changing and the turbulence of current markets, it makes it even more important to get your house in order.

The changing face of risk

A risk manager’s role is self-explanatory – they identify and assess threats to a business. These threats can come from anywhere: financial uncertainty, legal liabilities, management errors, accidents and even natural disasters. In some ways they need to see the future, and in the rare event they miss something, at least be able to quickly adapt to and limit any negative implications.

The role had changed significantly over the past 10 years or so. Whereas before the focus was very much internal, concentrating more on financial risks to companies, nowadays they spend more time looking outward. Liquidity, operational, compliance, regulatory and reputational risks now form a large part of the job.

IT security threats and data risks are also a much bigger issue, especially in light of GDPR. A risk manager’s skills need to be varied.


Risk of compliance

The rising role of compliance is a risk to risk itself. With compliance teams growing in reaction to increasing legislation and harsh penalties if rules aren’t followed, the authority and budget of risk managers have started to suffer.

Many CEOs would rather focus on ensuring they maintain the status quo whatever happens, rather than on the uncertainty of what might happen when it breaks.

The risk manager’s traditional toolkit has also been undermined by unpredictable and hard-to-model factors like Brexit, which had a huge impact on currencies, or government policies on renewable energy, which have had a big impact on the way energy is traded.

Hire the best risk manager

Often the role of risk management is left to the employee who wears the most hats, but as your company grows, your assets do too, and this approach just won’t cut it.

A risk manager doesn’t have to be exceptional with numbers, but it helps. Quantitative risk management is important – your risk manager needs to know their way around a spreadsheet – but qualitative and communication skills are arguably even more so.

Spyros Maragos, manager of risk analytics at US-based Direct Energy, says: ‘You have to ask the right questions – that is a trait of good risk managers. You need to be able to explain the numbers to management and have an understanding as to what impact market changes have on the company P&L.’

The perfect risk manager is a good communicator, able to explain complex problems to the most high-level executive, but also a maths and computer programming prodigy. They may sound rarer than hen’s teeth but they’re out there, and once you find one, you shouldn’t let go. You can’t risk it.