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Senior CFOs are expanding their risk management responsibilities in response to an increasingly volatile environment. Many enjoyed the challenge and discovered that it offers financial opportunities and greater influence on the board.
A growing array of threats has forced finance executives to focus more on managing risk, including technological disruption, changing market dynamics, geopolitical uncertainty, and environmental risks. The coronavirus has further increased the pressure. Nearly eight in ten CFOs say the pandemic has sparked more demands for risk management, among other changes in their roles, according to an Accenture study.
Mike McLaren, CFO of professional services firm FDM Group, says: “Risk assessment and management has increased dramatically due to COVID-19 and is now a key part of the CFO’s role. The shift to remote working and lockdown restrictions has made anticipating financial challenges and managing resources a top priority. “
Most CFOs focus on the short-term risks of protecting financial positions and managing digital risks, such as cyber attacks, which have become more dangerous during the pandemic. But the crisis has also created or accelerated many other threats ranging from supply chain risks to changes in customer behavior and staff mental health issues.
Kelvin Stagg, CFO of recruiting firm Page Group, says CFOs, as owners of the financial business model, are well positioned to take on more responsibility for overall risk management. “Our functional managers assume their risks, but as the company’s financial custodian, I am responsible for balancing these risks,” he says.
Other leading CFOs have also seen the benefits of doing this, using their knowledge of the risks to increase the frequency and scope of working with C-suite partners. CFOs who have transformed their roles are also experiencing increased growth and profitability.
Risk management generates value
Risk management is not just about prevention and mitigation, but also about taking the right calculated risks.
Stagg says one of the biggest risks for Page Group is missing out on opportunities to gain market share in the post-COVID recovery.
“We started aligning the company with these opportunities in July 2020,” he says. “For example, we found that competitors mistreated staff during the pandemic. We hired 500 of them, many of whom have technology recruiting experience, which was another opportunity due to the demand for cloud engineers to support remote work. ”
Stagg has introduced a risk management matrix in Page Group, which allows it to quickly spot these risks and opportunities. The matrix plots risk tolerance bands in key areas. It shows where the current level of risk for the business is in each, based on an evolving range of metrics, compared to 12 months ago.
Many CFOs appreciated the challenges posed by the pandemic, seeing it as an opportunity to test and strengthen the strength of their risk management plans.
Elodie Brian, CFO of UK haulier Go-Ahead Group, says: “We are going through unprecedented levels of uncertainty, testing our agility more than ever. In response, risk management has become more dynamic and in real time. We have moved from business forecasting to dynamic scenario planning and fostered greater collaboration between teams to accelerate decision-making. “
It also helps the company anticipate long-term risks, such as permanent changes in customer behavior, for example around commuting and an accelerated green program.
Focusing on risk can also generate value in other parts of the business. James Ireland, CFO of financial services provider Sanne Group, said: “The focus on risk management in the role of CFO has enabled us to invest more in this area, which generates value.
“The key is to focus not only on mitigation, but on using the results of risk management activities to improve and refine business processes and strategy. This improves understanding of resource allocation, which strengthens our business and improves efficiency and value for stakeholders. “
Exciting challenges
Mauricio Ortiz, CFO of Chilean mining company Antofagasta, said: “The oversight and implementation of a risk management strategy is exciting and central to my role, even more so in volatile environments like in 2020, and transformations such as the adoption of new technologies or the response to climate change.
“It was nice to see that our risk management program was strong as the pandemic tested it in operational, business, logistical and social scenarios.”
The company’s main long-term risk – climate change – is also starting to emerge, Ortiz says, for example with drought and heavy rains in Chile. The company is responding by adapting its operations to more difficult weather conditions and developing clear policies, as well as reporting and communication strategies around climate change.
McLaren says board diversity is an essential part of good risk management because it helps raise awareness and balances awareness of more risk by avoiding group thinking. “FDM’s diverse board of directors has over 500 years of diverse experience,” he says. “In addition, our internal and external auditors worked with the group to understand the risk profile of the business.”
Mark Satchel, CFO of wealth manager Quilter, says the most effective mitigation strategy is to have a strong culture of risk-informed decision-making in finance and across the group.
“This includes the link between risk management and performance, development, and compensation and reward systems,” he says. “An environment that encourages people to embrace risk management and speak up as needed is essential to achieving strategic priorities.
“If the past year has taught us anything, it’s that businesses need to be prepared to react quickly to disruptions. It brings business benefits and helps build a more resilient business. ”
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