The Evolution of Risk Data: Do You Know the Risk Leader’s Role

- December 3, 2024

The word “risk” often evokes thoughts of obstacles and danger. Risk is something to be wary of, a precarious tightrope that could send everything off course at any moment with one wrong step. Regulatory requirements, supply chain disruptions, reputational damage, and myriad other concerns are all concerns that push organizations to assess their operating environment in an ongoing effort to avoid business interruptions and legal consequences. Put simply, risk is a threat.

Except when it isn’t.

Organizations gather troves of data in their efforts to mitigate risk, but they often stop there. But the same data used to mitigate potential damage can also be employed to unlock a vault full of valuable insights and opportunities that drive strategic initiatives. Rather than viewing risk as a barrier to operations, companies should see it as an asset to help guide them toward growth.

Benefits of Viewing Risk Data as an Asset

Looking at risk as a potential opportunity rather than solely as a liability can yield multiple benefits, including:

Informed decision-making: Risk data provides insights into vulnerabilities and risk scenarios, enabling decision-makers to develop more robust strategies.

Proactive risk management: Understanding risk data allows firms to anticipate and prepare for risks, reducing their impact.

Competitive edge: Effectively using risk data can uncover opportunities that competitors may overlook.

Efficient resource allocation: Focusing on significant threats and opportunities allows organizations to make more impactful investment in risk management.

Regulatory compliance: A robust risk data management program helps us to adhere to compliance with industry standards and legal requirements, even as they change and evolve.

Stakeholder confidence: Demonstrating mature risk management builds trust with investors, customers, and partners.

Enhanced agility: A strategic approach to risk data provides the agility needed to adapt to changing circumstances.

Continuous improvement: Ongoing collection and analysis of risk data lead to continuous enhancement in resilience and performance.

Perceived risk versus actual risk: Most ERM/ERA efforts are qualitative in nature getting their inputs from interviews and meetings

These benefits also offer risk owners the opportunity to quantify the value of the data they’re gathering. Risk is frequently modeled and assessed as a qualitative strategic decision that requires large investment without a simple way to measure its return. But by taking risk data and employing it as a growth driver, the same information can be used twofold: to avoid the pitfalls of risk and to move toward new, more easily quantifiable opportunities.

For example, a financial institution may gather data to try and predict if an economic downturn is likely so that it can mitigate potential losses. As the organization analyzes data for historical patterns and current market trends, it can go beyond reducing its risk exposure and proactively adjust investment strategies to capitalize on emerging opportunities.

Technology Will Disrupt Risk Management as We Know It

Identifying opportunities and risks can become a challenge with the sheer amount of data organizations collect, but advances in technology are changing that. Automation tools are shifting processes like business impact analyses and dependency mapping away from being manual tasks, while artificial intelligence and machine-learning algorithms can build upon automation to analyze the data and point out potential risks. These tools are also able to source, incorporate, and synthesize external data to create a more complete picture of current market conditions that can impact the business. As a result, risk managers can take a macro-level view of risk and opportunity from a strategic vantage point instead of being occupied by administrative functions.

Elevating the Role of the Risk Officer

With technology delivering data insights more efficiently from across the organization and from external sources, decision-makers can connect data points that may have been overlooked previously because the information was siloed. That, in turn, elevates the role of risk managers to operate as data stewards, proactively aligning risk management with corporate strategy. It also places risk data in the conversation at the highest levels of the organization since it informs both risk mitigation and new ways to seize strategic opportunities.

Said another way risk management professionals not only need to consume this data to effectively monitor risk. They need to produce this data to enable others to manage it on the front lines and at the highest levels of the organization.

The Changing Profile of the Risk Management Team

The evolving role of risk managers means the profile risk team will also need to adapt. The proliferation of technology, with data at its heart, necessitates diverse skill sets that go beyond traditional risk management. Key roles in the future risk team will include:

Resilience lead: Anticipates and prepares for changes, risks, and opportunities brought by AI while acting on data insights, including hiring a team with the skills to execute on the potential AI can bring.

Data analyst: Interprets data to identify patterns, trends, and risks, promoting data-driven decision-making.

User experience specialist: Implements the design and functionality of risk management programs to meet stakeholder expectations.

AI/tech liaison: Integrates technology to support program goals and ensures access to necessary data and systems.

Governance and regulatory specialist: Ensures compliance with relevant laws and regulations.

In addition to diverse skill sets organizations, organizations should also focus on building diversity in the makeup of the risk team. Bringing together people from different backgrounds can provide new perspectives to help identify and mitigate biases in risk data. It also encourages innovation by providing a wide range of viewpoints, further promoting the exploration of novel ideas that go beyond the status quo.

Moving Toward the Future of Risk

Viewing risk data as a strategic asset represents a significant shift in the approach to risk management and resilience planning. By leveraging risk data for strategic insights, organizations can make informed decisions, proactively manage risks, and gain a competitive advantage. The evolving role of risk owners and the diverse skills required for future risk management teams will be crucial in this transformation.

Organizations can start the process now with a few key steps.

Invest in technology: Implement AI and machine learning tools to automate risk data analysis and identify patterns.

Foster collaboration: Encourage collaboration between risk owners and other departments to integrate risk data into strategic planning.

Build a diverse team: Assemble a risk management team with diverse skills and perspectives to drive innovative solutions and identify biases in risk data.