Future of risk management: more strategy, communication and complex risks

The risk landscape has become so complex that risk managers have to change how they manage risks, according to Michel Dennery, vice-president at the Federation of European Risk Management Association (FERMA).

Speaking before the AMRAE 2015 session entitled “Risk Manager: un nouvel élan ?”  Dennery, who is also directeur du management des risques at GDF-SUEZ, said: “Traditionally, risk managers focused on operational risks and threats arising from insured risks. But today, the responsibilities for risk managers have extended to include financial and strategic risks.

“The risk landscape has become so complex that risk managers have to change how they deal with risks.

“For instance, 10 or 20 years ago, when a risk arose, a risk manager’s approach would be to treat the threat as an operational risk. But now, in a globalised world, risk managers have to take a more strategic approach and not only consider how a given risk could interrupt business but how it could damage a company’s reputation.

“There are two main tiers to a risk manager’s role: operational and strategic and risk managers should practice both. It would be ineffective if risk managers focused solely on strategy as this will not prevent or mitigate risks and could exacerbate a product recall for instance.

The panellists – Max Giumelli, Directeur Gestion des Risques at VIRBAC; Marie-Elise Lorin at  Responsable du Département Gestion des Risques et Conformité, SMACL ASSURANCES; and Sébastien Rimbert, senior manager, E&Y – will discuss how the role of the risk manager has developed and how it will evolve in the future.

One key point likely to arise from the debate is an increasing pressure for risk managers to be involved in business strategy. According to Rimbert, risk managers are not being utilised adequately in this area.

He said: “There are a number of challenges for risk managers. The first one, and I would say this is the most important one, is that risk managers need to be more involved in strategy.

“Risk managers need to be recognised at strategic level. Unfortunately, findings from FERMA’s 2014 benchmarking survey suggest that the risk managers are not fully involved in discussions about business strategy and areas such as investment, acquisitions.

“To credible at recognised at strategic level, risk managers must be able to influence decision-making and advice top management on areas such as the cost of risk, business strategy and risk financing. Supplying top management with a risk report is no longer enough.”

Looking at how the role of the risk manager will evolve, Rimbert explained that risk maturity has improved greatly over the years but if the discipline is to further improve, professionals need to overcome a number of challenges.

He said: “Ferma’s biannual benchmarking survey demonstrates that risk management has increased in maturity, most notably in risk governance. For example the survey indicates that more and more risk managers are reporting to the board and top level management. This suggests is the interaction between the risk management function and the board is increasing.

 “Another indicator that demonstrates that risk management maturity is increasing is in the number of companies that conduct risk mapping.

“However, there are a few challenges. The first challenge is that risk managers must develop strong relationships with all departments within the business. FERMA’s survey highlighted several units that risk managers do not have strong engagement with, including HR and IT.

 “The other challenge is in providing regular quantitative analysis to top management. Interestingly, the survey found that risk managers do not use IT or audit tools enough to support their risk management approach, but if they did, they may be able to provide regular quantitative information to the board.”

“Lastly, it is really important for risk managers to innovate so that they can overcome challenges and demonstrate to top management and other departments that risk management is valuable.

For Dennery, the focus should also be on emerging risks and strengthening relationships between risk and insurance functions.

He said: “Risk managers should also focus on emerging risks and factors that will change how businesses operate tomorrow such as trends in new technology and the internet.”

He added: “Increasingly, businesses are separating the risk management function from insurance. So in some companies, there will be two teams: the risk team and the insurance team. To successfully manage risk, these two functions need to re-establish or maintain their link.”