Risk transformation: Embracing conscious risk taking

Risk transformation: Conscious risk taking

As organisations, products, services and channels change, the risk function has to evolve to manage and mitigate risks, but also to create value out of risk.

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Partner in Charge, Risk Consulting

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Giving risk a seat at the strategy table

With corporate regulators asking more and more out of the risk function, and putting more compliance processes in place, boards are now laser focused on how the risk function can add value to the business rather than simply acting as a cost centre.

This means many organisations need to reimagine how the risk team functions, where it sits and, most importantly, how to embrace conscious risk taking to create the value companies need to offset the costs of compliance.

In an Australian context, many companies have risk departments that simply tick boxes when it comes to risk management. But it's time to revolutionise how this team functions to it is empowered to think creatively around how they can leverage the risk agenda to help drive the company's overall business objectives.

There are five key ways to approach this kind of transformation. Some of our clients have had significant success with these approaches:

  1. Create a more dynamic vision for the risk team: many organisations are focused on meeting their obligations as opposed to being agile and responsive to the company's changing needs. Successful risk teams are focused on compliance, but they also focus on innovation and thinking laterally about how their function adds value. Kate Hughes, Chief Risk Officer at Telstra explains their philosophy: "The only bad risk is the risk you didn’t intend to take, risks you didn’t manage well or the risk you didn’t price well."
  2. Give risk a seat at the strategy table. Risk executives need to have a voice when it comes to the overall strategic direction of the business. There's no value in burying the risk team in spreadsheets, numbers and rules. The value of risk can be illustrated through the CRO working closely with senior executives and the board in strategy formulation.
  3. Move towards a more conscious risk taking agenda. You are doing your company a disservice if the risk team is solely tasked with mitigating or eliminating risks. Organisations need to choose some level of risk to take on board to achieve their strategic goals. A well-defined risk appetite provides a solid framework for conscious risk taking.
  4. Make sure the contrition of risk is measured and reported. There needs to be a feedback loop for CROs and the risk team, so they can demonstrate their value and have this recognised. This creates more momentum to bring risk into strategy level discussions.
  5. Pay attention to the changing role of the CRO. To truly see a transformation in risk, the CRO needs to be more than a technical expert – they need to be a creative innovator with commercial acumen and a very strong ability to communicate. Chris Horsely, Head of Risk Transformation at Commonwealth Bank of Australia comments: "There is a shift from technical skills to business leadership. Commercial acumen is also important; we need risk people to really understand the business."

Like it or not, a changing risk environment is fundamentally shifting the goal posts for organisations around the world. It's always a challenge to manage compliance and other forms of risk – but the opportunity to benefit is just as significant as the challenge.

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