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Risk Management as Revenue Driver: An Adaptive Approach

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Risk Management as Revenue Driver: An Adaptive Approach

It’s common to think of Risk Management as a nuisance. The company mavericks in business development want to move fast and ink deals with abandon, while overly cautious risk managers keep them in check with careful statistical models and spreadsheets—or so the thinking goes.

Today, that perception is being turned on its head. In the modern business world, the critical role risk management plays in creating value is finally being recognized. A report by PricewaterhouseCoopers bears this out: companies that put a premium on risk management are seeing better growth and increased profit margins.

The PwC report, Risk In Review: Managing Risks and Enabling Growth in the Age of Innovation, begins with a premise that most risk managers already know: as the number and variety of risks explode, executives are constantly faced with difficult decisions to protect their businesses. Meanwhile, of course, they’re also charged with the task of improving financial performance.

The Upside

While this might paint a bleak picture, the report also offers some guidance on how to transform risk management into a competitive advantage. By integrating risk management into the business life cycle, these two objectives can easily come together to work in unison, the report maintains.

Getting there, of course, is no easy feat. By interviewing 1,535 executives in risk functions from 76 countries and across 30 different industries, the report identified companies that serve as models in their successful approaches to risk. The report calls these companies “Adapters”—organizations with programs that not only tackle innovation-related risks effectively, but also exert much more influence over decisions about innovation.

What sets Adapters apart from the also-rans? The report identifies the following critical actions.

Adapters…

...involve risk management in the business at a strategic level. This involves a high degree of cross-functional alignment, particularly with finance, internal audit, and corporate compliance. Further, they engage early and across the innovation cycle.

...take more—and more sophisticated—actions to manage innovation risk exposure. These actions include risk acceptance processes, risk sharing strategies, and even deploying artificial intelligence to calibrate risk exposure.

...understand their strategic risk appetite—and adjust it frequently. These companies recognize that capturing value from innovation requires fast, yet disciplined, adjustments to risk appetite. They also know how to communicate their decisions upward and downward to gain strategic buy-in.

...adopt new tools to support innovation. These might include new technologies to stay on top of the company’s risk profile, hiring or training to expand skill sets, or new methods of assessment.

...understand how risks interconnect and impact business. Companies that lead in risk management tend to take a holistic view of risk and recognize the relationships between risks and business results at a broad level. Risk management leaders are also more likely to compile an aggregated view of risks when making decisions—offering a clear and realistic understanding of operational issues and market opportunities.

Becoming an Adapter

At your company, effective risk management needs to start at the top. Employing Adapter strategies can make your company a better steward of risk, minimizing the downside consequences of any new business initiative while protecting the upside potential. It doesn’t happen on its own, though. It is critical that the proper oversight and accountability exist at the board and executive levels.

How LogicGate Creates Adapters

When successful at turning risks into results, companies can create competitive advantage and sustain it for a long time to come. LogicGate’s Enterprise Risk Management solution is an agile and robust platform specifically tailored to help your business do just that. Through its powerful data mapping capabilities, it enables you to see a holistic view of all your risks and how they relate to the business objectives and drivers that impact your organization. Based on your organization’s unique risk appetite, LogicGate’s flexible app builder empowers you to customize your risk scoring model and drive risk-response protocols based on conditional logic and dynamic reporting. Armed with this data, you’ll be able to make decisions concerning risk and innovation with confidence.

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