How Finance Departments Can Mold Risk Mitigation Into Opportunity

The enterprise is exposed to financial risks at just about every angle, with expansion across borders and into partnerships with unfamiliar firms upping the ante on both risk and reward.

Analysts are urging corporates to enhance their risk management strategies in today’s particularly volatile climate. But enterprise risk management (ERM) isn’t just about playing defense; rather, strategic ERM enables professionals to identify new business opportunities that result from volatility, market changes or otherwise risky shifts in the market.

A recent report in Harvard Business Review highlighted just how difficult it can be for professionals to effectively manage enterprise risk, however.

In a survey of 116 CEOs and high-level executives, researchers at Vantage Hill Partners found that CEOs’ anxieties over being considered incompetent or vulnerable may lead them to “take bad risks to overcompensate,” as Vantage Hill Chief Executive Roger Jones told INC.com.

Now, analysts at the International Federation of Accountants (IFAC) are urging ERM to move beyond the c-suite.

The IFAC’s latest report, “Enabling the Accountant’s Role in Effective Enterprise Risk Management,” highlights the potential for corporate accountants to not only identify and mitigate risks their companies face, but to uncover new opportunities for growth and success through ERM strategies.

“This is a particularly uncertain time for businesses as the global economy experiences heightened volatility and rapid change,” said IFAC CEO Kevin Dancey in a statement announcing the report. “In this environment proper risk management will be increasingly important for organizations to ensure their resiliency and success over the long term,” he said.

“Professional accountants are well-positioned to better serve the organizations they work for by enabling effective enterprise risk management that identifies both risks and opportunities for the business,” the CEO noted.

The report outlines three key strategies for corporate accountants to incorporate risk management in their practice, including aligning their ERM activities with broader efforts to create value for their organizations, using ERM modeling and analytics to support the creation of actionable insights, and encouraging the organization to facilitate data sharing across departments to deepen risk management analysis capabilities.

According to IFAC, incorporating accountants and finance departments in a firm’s risk management strategy can be a critical component of helping businesses understand that risk management is not only about avoiding risky situations, but also aiding in the development of business strategy and identifying opportunity.

Accountants can quickly fall into this “mitigation mindset,” the report warned, so organizations must encourage finance professionals to shift that mindset and understand ERM not as a single function, but as a collaborative effort across departments to propel business objectives.

“CFOs with clear risk management responsibilities are in a better position to make individual and functionally greater contributions to strategic and operational risk management,” the report stated.

Today, external auditors and accountants are facing rising pressure to mitigate risk amid market volatility, with analysts pointing to increased auditing fees last year as accounting standards tighten. Auditors are embracing automation to mitigate against the risks of errors and non-compliance, the Wall Street Journal reported last month.

But as they defend against risks, auditors are also beginning to embrace the idea that risk mitigation can include identifying opportunities.

“We’re using data analytics to look for anomalies in different areas of risk, such as fraud risk or revenue-recognition areas,” said Jerry Ravi, a partner at auditing and accounting firm EisnerAmper LLP, in a survey recently released by the Financial Education & Research Foundation.

The IFAC report suggests internal accountants, chief financial officers and finance teams must also embrace this shifting view of enterprise risk management to actively identify opportunity and help the enterprise achieve its goals.