What Firms Need To Know About Risk Management
As organizations evolve, risk management is increasingly becoming a focal point for an organization’s growth strategy.
While the transformational shifts in our economic, environmental, geopolitical, societal and technological environment offer a plethora of opportunities, they also imply enhanced potential risks.
Deepak Parekh, Chairman, Housing Development Finance Corporation, at a CII summit stated: “There are a number of risks that banks and financial institutions have to constantly manage like credit, interest, forex, maturity risks, but by far the most important risk is reputational risk. If you lose it, it’s nearly impossible to get it back again. Senior management must instill and crusade a culture of integrity, honesty and transparency -which is a foundation for a robust risk management framework.”
Effective risk management that defines, characterizes and measures the probable negative impacts of interconnected global risks can aid organizations reap unparalleled benefits in a globalized environment. How organizations manage these risks will be a game changer for the future of India Inc.
Richard Rekhy, KPMG CEO, said that risks can be only effectively dealt with if there is a common understanding of their importance and interconnected nature and readiness.
Summit Chairman, Suresh Senapaty, Executive Director and Chief Financial Officer, Wipro Ltd said: “Opening of the economy with significant technology deployment comes with associated risks which any corporate should be mindful of and embed in their strategy. Risk has become a value creation function and is critical for CEO/CFOs to engage on”.
The CII-KPMG report titled ‘Derisking the future of India Inc’ states that as per NACD’s Blue Ribbon Commission, boards need to be cognizant of the kinds of risks that companies typically face which include Governance risks, critical enterprise risks, business expansion risks, business management risks and non-traditional risks.
Dealing with risks
Among other ways, the CII-KPMG report says identifying risk oversight responsibilities at the board-level will help avoid risks.
According to former Infoscian Mohandas Pai, the biggest risk Indian Corporates face is the lack of understanding risks by corporate boards.
Robert S. Kaplan and Anette Mikes wrote in HBR in 2012 that executives need to know which risks can be managed through a rules-based model and which require alternative approaches. They categorized risks as: Preventable risks, Strategy risks and external risks.
The top three gaps include fragmented risk data and analysis, gaps arising directly from business transformation initiatives, and cyber-security gaps. These areas require closer attention to mitigate risks, according to PwC.
According to a global survey by PwC, business risks are rising across the board, with 75% CXOs reporting increased risks to their business.
“Executives are working to close the capability gaps they’ve identified, and agree that close collaboration between risk-related functions is vital to ensure a shared view of business risks across the enterprise,” said Brian Schwartz, PwC’s US Risk Assurance leader.
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