Risk Management Watch: Banks Overhauling Risk Management Profile, Hiring Risk Managers
The lingering credit crisis has forced firms to boost their balance sheets and safeguard against future market shocks. As a result, the field of financial risk management has grown and continues to advance at a rapid pace. The renewed emphasis on risk has also ignited debate on current practices and potential weaknesses. One issue in particular is whether or not risk management has become overly dependent on quantitative measures. A new survey conducted by KPMG International, suggests that not only is there a pressing need to raise the profile of risk management within firms, but the consideration of risk is also moving beyond the traditional quantifiable measures towards a more qualitative assessment.
Meanwhile, as management shakeups at leading banks continue in the wake of the subprime meltdown, executive recruiting firm, A.E. Feldman, says that firms are not only on the hunt for senior-level risk managers, but also raising the profile of risk management across their businesses. The recruiting firm says that now more than ever the risk office must be acutely aware of where the risks are and where the value lies. As a result, firms are hiring risk professionals who have been tested by previous market cycles.
Risk management and control functions are assuming a more forward-looking role, according to a recent KPMG International survey. In fact, the study of 435 senior executives finds that a growing emphasis on risk and controls by senior management is the single biggest factor driving changes in risk management. KMPG’s research also suggests that risk can take on a more strategic focus in order to have a real impact on a company’s performance. Jeremy Bendall , Head of KPMG Enterprise Risk Management services for Asia Pacific, says, “With ongoing pressure from external regulators and their own senior management, the time has come for internal risk and control teams to make the move from simply keeping score, complying with regulations and limiting losses, to actually generating value. ”
Limited risk awareness however still remains the biggest barrier to effective risk and controls, according to the KPMG survey. Respondents say there is a pressing need to raise the profile of risk management within the business and stress the need for a risk culture to permeate an entire organization.
Not All Risks are Quantifiable
KPMG’s survey suggests that a consideration of risk needs to be part of every business decision. Traditional quantitative analysis and control will be superseded by a model that includes a qualitative assessment, involving issues such as the quality of decision making, human capital risk, quality of collaboration and stakeholder engagement.
According to KPMG’s Bendall, “No longer are organizations constrained by a mindset that dictates: if it can’t be measured, then it doesn’t exist. No longer do risks and controls sit solely with finance. This latest incarnation will be of a risk management process that is focused on qualitative measures as well as key quantitative measures. This leads to a better understanding of the true impact of non-financial risk on areas such as reputation, brand equity and corporate social responsibility.”
Looking Ahead
Amid a highly uncertain business environment, a survey of more than 600 board-level executives conducted by the Economist Intelligence Unit (EIU) identifies globalization and talent shortages as two of the top risks facing firms over the next decade.
The EIU report quotes François Barrault, Chief Executive of BT Global Services as saying, “Globalization is driving risk management to become an issue of strategic importance. Companies that integrate their risk planning and infrastructures will be more resilient and will reap the rewards in this more complex trading environment.”
Risk management is also projected to become a more strategic activity over the next ten years, according to EIU. Two thirds of respondents say this area will become more important as a strategic tool, and nearly 60% expect it to command more attention from the boardroom.
