In today's information age, organizations have judiciously expanded their definition of risk by examining a multitude of new threats, exposures and potential circumstances that could compromise strategic objectives and business continuity, erode shareholder value and jeopardize trusted brand-names. Complex risk management systems and technical architectures that help gauge and assess risk have found their way into corporate governance agendas as IT has finally been brought to the forefront of risk management (RM).
An effective RM system will support corporate governance initiatives by establishing an infrastructure to effectively take stock of and control risk; organizations will be better equipped to educate employees about risk and delegate its management. With one central repository to track, gauge and report risk, substantial policies that address and quantize its consequences can be generated on both a departmental and corporate-wide level. A prudent and well-planned culture of risk management and aversion as well as methods for identifying plausible perils are more handily promoted throughout the enterprise so that directors and managers can be proactive and not reactive.
Company directors often only think about the most obvious corporate risks such as credit, operational, legal and market risk; however, the world of risk is bigger than many recognize. Institutions need to measure and manage looming hazards across a wider spectrum, rethinking the associated dimensions they are currently measuring. They must be able to tie together facts from disparate silos of market, credit and operational data and merge them with more abstract exemplars (intellectual property, brand loyalty and much more) that cannot be quantified and reported easily on an average balance sheet - factors that often lay outside the usual scrutiny of the chief risk officer.
Risk Intelligence Hierarchies
Robust RM systems will capture all types of business intelligence from which analysts can construct numerous what-if scenarios. Full-bodied risk intelligence hierarchies (RIH) can be created, which identify both the likelihood and impact of different scenarios. RIH will greatly aid in the identification of tactical points of control in business processes that may need adjusting in order to reduce risk potential. Once leading indicators of risk are properly understood, it will become much easier to maintain real and sustainable competitive advantage by embedding RM controls into all business work streams and data supply chains. It will also be easier to turn data about liabilities into actionable knowledge across business lines and products with the transparency you have come to expect from other dashboard systems that integrate quantitative and qualitative knowledge. Armed with enhanced predictive insight, businesses can avoid spending too much capital on risks that are out of proportion with their likelihood or potential impact. RM systems that are built to house auditable performance targets and goals (with metrics that can scale with fast-changing regulatory environments) will ensure all stakeholders receive a significant return on their investment. In addition, RM best practices (stored as rules in system metadata) will be reinforced by supporting application and database architectures.
Many events of the recent past have forced executives to pay a great deal of attention to the corporate governance process. They have become more beholden to both investors and regulatory bodies - and even the good of society — than ever before. As greater worldwide attention to proper operational disclosure and increased transparency in business dealings have materialized, skillful risk management has become synonymous with sound business management.
Large organizations must be able to clearly communicate with regulators, auditors and specialized rating organizations such as the Governance Metrics International (GMI), which has a well-established corporate governance rating system. Building a data governance architecture that can scale dynamic regulatory environments is one of the least sexy and most ignored elements of RM. However, savvy executive leadership is starting to learn that strategic risk systems and compliance-based data warehouses are important components of good corporate citizenry.
Register or login for access to this item and much more
All Information Management content is archived after seven days.
Community members receive:
- All recent and archived articles
- Conference offers and updates
- A full menu of enewsletter options
- Web seminars, white papers, ebooks
Already have an account? Log In
Don't have an account? Register for Free Unlimited Access