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4 Ways Technology Can Help Manage Your Business Risks And How To Leverage This Opportunity

At one time, I was part of a working committee that reviewed a risk event that resulted in a material financial loss and regulatory sanction to an organization. The company got sanctioned for non-compliance with the Know Your Client (KYC) requirement caused by a gap in the manual risk management procedures. This event would probably have been mitigated if the KYC checks and controls process were automated.

For example:

Have you thought of how an application can automatically identify KYC risks by navigating multiple systems to review client information and identify inconsistencies? And how this process can save your organization from a loss of funds and prevent regulatory sanction?
Can you imagine how much time and money will be saved by automating risk routine credit management checks with a technology solution that can establish and predict customersâ credit behavior based on past data and trends?
How about the additional value that risk managers will contribute to achieving organizational goals by focusing on strategic tasks if routine risk management processes are automated?

Technology has tremendously impacted almost every aspect of life and business. Risk management is affected because its implementation relies on business data and processes. Results from the Deloitte GRM survey showed that institutions had recognized the potential of the latest technologies to manage risk and increase efficiency in business processes. Cloud computing (46%), RPA (29%), and machine (27%) were most of the commonly used tools by respondents. Despite this, relatively few institutions reported deploying these tools.

This article will present why there is a need to leverage technology for risk management and the types of technologies used for managing these risks.

Importance Of Technology Risk Management

Woman uses technology for risk management

Trend Analysis & Risk Prediction - Risk management technology solution facilitates data analysis to identify trends and make risk predictions to support decision-making by analyzing data relevant to risk management to pinpoint behavioural patterns.â

Easier Risk Identification, Monitoring & Escalation - Technology solutions that support risk management simplifies the risk identification and monitoring process. In the case of an anomaly or exception, issues are promptly identified and automatically reported to the right people for appropriate action.â

Scalability and Operational Efficiency - Using risk management technologies help scale up, handle workload spikes, and increase the consistencies and correctness of risk analysis and predictions.â

Compliance - Risk management technologies help ensure procedures and regulations compliance. Technologies explicitly built to provide companies with an insight into trends will help ensure that the organization is abreast of all the industry requirements.

Risk Management Technologies

Cloud Computing is the on-demand delivery of technology resources over the internet. Instead of buying, owning, and maintaining physical data centers and servers, technology applications and services are accessed on an as-needed basis from a cloud provider. Cloud-hosted risk management software helps organizations reduce exposure to risks and minimize losses through better data management. Adopting cloud-based risk management applications provides an organization with a more efficient and cost-effective alternative to buying and running an in-house risk management application.

Robotic Process Automation (RPA) - RPA is a form of business process automation that involves defining a set of instructions for a robot or 'bot' to perform. RPA is about automating some repetitive tasks and processes in the workplace, e.g., copy-paste tasks and moving files from one location to another. RPA provides multiple benefits for an organization to manage its business operations effectively. One of the benefits is the reduction of the overall risk associated with business operations. Specific use cases RPA is adopting for risk management include the Know Your Customer (KYC) onboarding process where bots can retrieve customer data from regulatory agencies to support the onboarding process. It also uses limit management by supporting the identification of limit breaches for potential review by risk managers.

Big Data Analytics - Big data analytics is collecting and analyzing large volumes of datasets to discover trends and identify to support decision-making. Data helps risk functions make better decisions. An example is to analyze customer information across various platforms to determine credit risk and the likelihood of default. From an operational risk standpoint, big data helps identifies risk areas in business operations to ensure proper risk management.

Machine Learning & Artificial Intelligence (AI) - Artificial intelligence leverages computers and machines to mimic the problem-solving and decision-making capabilities of the human mind. AI is used to enhance risk management processes. For example, performing risk analysis using machine learning to analyze data from various sources and develop prediction models to help risk managers proactively manage and address risks. Also, AI facilitates risk reduction by analyzing historical data to identify behavioral patterns and translate them to risk predictors.

Cybersecurity - Cybersecurity is a body of technology that protects internet-connected systems such as hardware, software, and data from cyber threats. Organizations in the cybersecurity space periodically publish emerging trends of cybersecurity breaches. Risk functions can leverage this information to gain insight into the risk associated with various technologies used for business processes and how they are managed.

Technology is a key enabler that supports the risk management implementation process; despite this, organizations should evaluate the pros and cons of technology solutions before implementation.

If you're interested in learning more about how risk management can help achieve your business, data, and technology goals or have any follow-up questions, please feel free to follow/connect with me on LinkedIn.

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4 Ways Technology Can Help Manage Your …

4 Critical Components To Risk Management Success

I spoke to a senior business leader who talked about how the thoughts of navigating the risks associated with some of the business processes he currently manages keep him awake. He leads the segment of his company that coordinates customers' activities, mobile transactions, and e-commerce payments. Some of the reasons why he was worried were:

Possibility of a hacker compromising customer data for spam or identity theft
The fear that a customer data breach will result in a reputational damage
Concern that someone might use a stolen card to make an online purchase
Thoughts of an employee mistakenly sending confidential data to a wrong email

Addressing all these concerns requires a risk management strategy. An effective risk management strategy is extremely important to mitigate potential risks that might prevent the achievement of business objectives. A survey from EY showed that 84% of board members do not believe their organizations have a highly effective risk management strategy. Risk management strategy is a vital part of the risk management process, which involves the following steps:

Asset Identification & Prioritization

The first step of the risk management process is to identify the organization's assets, including physical assets, employees, information, and intellectual property. After identification, the assets are prioritized based on criticality. Assets could be classified as high, low, or medium based on their criticality to business operations.

Risk Assessment

This helps to identify, prioritize, and determine how risk is treated. It involves three (3) steps:

Risk Identification - This involves identifying threats and vulnerabilities that place business assets at risk that might impact the achievement of business objectives. Example: What are the threats to data in the data warehouse? What harmful event may cause damage to physical assets? What are the harmful events that could cause danger to company employees at work? What could cause damage to business assets? Is our software susceptible to a malicious cyberattack?
Risk Analysis - Based on information obtained from the risk identification process, the risks are analyzed and prioritized based on the likelihood of a threat's occurrence and impact.
Risk Evaluation - This examination of the risk analysis results and comparison with established risk evaluation criteria to determine whether the risk is acceptable or additional controls are required to manage or mitigate risk.

Risk Management Strategy

This is the third phase of the risk management strategy. It is also known as risk treatment. It is the approach adopted by an organization to address risk. It leverages the information and results from the risk assessment process which includes identification threat, determining their probability of occurring an impact. It varies based on the company's risk appetite.

Risk Transfer - This strategy transfers risk to an external party. It is often adopted when a company cannot mitigate the risk associated with a business activity due to a lack of expertise or other complexities. Risk transfer doesn't discard the risk but transfers the responsibility of risk treatment to another party. An example is hedging an exchange rate risk through a derivative control or outsourcing a software development project to an IT company.
Risk Acceptance - This is also known as risk retention. It applies when an organization is aware that risk related to a business activity is known and accepted because it is unlikely to occur or is within the company's risk appetite. An example is when a company decides to limit resources allocated to perform review checks for transactions below a set threshold because the probability of fraud occurrence is low.
Risk Reduction - This is also known as risk mitigation. The strategy attempts to prevent a risk occurrence by implementing a control to mitigate the risk. An example is a company implementing a customer feedback mechanism to address customer concerns and avoid customer attrition. Also, human resources can implement an exit interview process to reduce employee turnover.
Risk Avoidance - This strategy eliminates risk from occurring due to costly consequences. It applies where an organization does not engage in a business activity because its associated risk exceeds its risk appetite. An example is when the company considers an opportunity to expand its product line but decides not to continue after analyzing the business plan and discovering that it's too risky and will significantly impact the organization.

Risk Monitoring

The risk management process is an ongoing exercise. After the risk has been identified and analyzed and an appropriate risk treatment strategy has been determined, there is a need to continuously monitor risk by tracking changes in the environment, its impacts on business objectives, and existing risk management strategies. This process will help adjust strategies as required to ensure they are still relevant and effective.

There is no business without risk. Developing and implementing a risk management strategy that allows business executives to identify, address, and monitor risks is crucial to risk management success. Effective risk management creates a healthy environment to achieve business objectives and helps business leaders identify opportunities and actions they need to take.

If you're interested in learning more about how risk management can help achieve your business goals or have any questions, please feel free to follow/connect with me on LinkedIn.

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