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Risk Assessment

Risk Assessment

Risky business

Dee Houchen,
Senior Director of Product Marketing, Oracle EMEA @DeeHouchen

Managing today’s growing number of potential threats


CFOs have always provided guidance on company strategy and been a sounding board for the CEO’s ideas, hopes and fears. It’s hardly surprising they are often first in line to succeed the chief executive. Today, they are expected to deliver more value than ever to the business. They need to be as confident in data analytics and financial reporting as they are in computer programming, managing teams, and presenting complex ideas to the board in easily digestible terms.

A recent report from Forbes and KPMG found that six in ten (63%) chief executives predict the CFO’s influence will increase more than that of other board directors in the next three years. According to the report, the CFO’s greatest contribution lies in their ability to boost a company’s performance and growth.

 Six in ten (63%) chief executives predict the CFO’s influence will increase more than that of other board directors in the next three years. 

Tellingly, however, almost one in three CEOs surveyed said that their CFO didn’t help them enough with the challenges of running their businesses. A lack of expertise in new technology (in particular, cloud-based ERP software) was a common complaint. CFOs and finance departments should take not if they want to carve out their rightful role in shaping business strategies. 

Harnessing Data

How can CFOs and their teams step up to the challenges of modern business? The answer lies in a new approach to data.

Stock-market turbulence, fears of another global recession and the migrant crisis; these are just some of the major global trends that are on corporate radars in 2016 because of their potential to disrupt operations, derail strategy and eat into profits.

Even the most experienced and steely-nerved CEOs could be forgiven for feeling a bit overwhelmed by the sheer number and range of risks they now need to track, assess and manage.
Managing risk is one of the trickiest tasks for a company because it often demands us to make judgment calls based on a certain level of speculation. On to top of this fast-changing regulation adds new potential risk to the fore, and requires businesses to be more agile than ever. Today, the effect of poor risk management on business growth can be dramatic indeed.

While many large companies have a risk department run by the chief risk officer, it is the CFO who is usually responsible for identifying, measuring and dealing with risk given their “bigger picture” view of the organisation. Today, this requires them to focus their energy and prioritise each risk to keep the business on course in very turbulent times.

Risks vary with type of organisation and the market they operate in, but in recent years, reputational damage, a slow economic recovery, and increasingly complex regulatory factors have affected the fortunes of organisations worldwide. The cost to companies has also been enormous, particularly when these risks are not managed effectively. 2015 saw more than one leading global company lose billions in market capitalization and revenues following a blow to their reputation that was not dealt with optimally.

 An integrated view of key risks and opportunities is vital. 

When done right, however, effective risk management can help businesses better prepare for whatever the market throws their way so they can avoid – or at least mitigate – the effects of any potential downturns. Research by EY reveals that companies that manage risk well perform three times better on EBITDA (Earnings before interest, taxes, depreciation and amortization) than those that don’t.

Those CFOs that do excel at risk management understand that an integrated view of key risks and opportunities is vital. By introducing a standardised process to identify, monitor and respond to threats CFOs will put the business in a position to take action earlier, resulting in loss prevention and cost savings.

Measurement is also essential to effectively managing risk. Just as most companies regularly gauge their performance against KPIs, they should also conduct frequent assessments to assure they are adequately prepared to manage the potential risks that lie aheaed. To achieve this, businesses must be able to quickly and accurately analyse financial data against performance indicators from across the business.

 A more rigorous approach to risk analysis across the organisation is essential to managing the shape-shifting threats of the modern market. 

It’s also important that potential risks are made transparent to business leaders, who may not have the analytics expertise required to dive into the data itself. Being able to track and summarise risk audits in easy-to-read dashboards allows decision-makers across the company to take swift, well-informed action for the good of the organisation.

Risk management has long had a reputation for being a complex task, and occasionally a thankless one, but its importance today cannot be overstated. A more rigorous approach to risk analysis across the organisation is essential to managing the shape-shifting threats of the modern market, and it will fall to the CFO to make this a reality.

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