Risk managers vulnerable to disruptive technology

15 May 2018 Authored by Consulting.us

Risk managers are on the frontlines as disruptive technology begins to make its presence felt across industries. Many are confident that their services will prove indispensable in adapting to disruption, but a new report asks whether the very same technology could ultimately make risk managers redundant and suggests urgent actions to be taken if they wish to remain relevant. 

The advance of disruptive technology comes as a multi-pronged attack. Artificial Intelligence, Blockchain, Big Data, and the Internet of Things present just some of the major disruptive elements that are set to radically transform the business landscape. Consultants play a central role advising clients on coping with, managing, and exploiting the coming change. They are joined in the strategic braintrust by risk managers, whose expertise in assessing the pros and cons of a new business venture, or external development, is valued by leaders.

Yet new analysis from Marsh – a leading risk management consultancy – and RIMS – a not-for-profit risk management society – questions whether risk managers will enjoy a seat at the strategic table for much longer. Conducting their 2018 Excellence in Risk Management survey, the two organizations held focus groups and gathered responses from 450 leading risk executives. With the results they compiled a report of significant importance to the industry, titled ‘Maintaining Relevance Amid Technology Disruption’.

Risk managers say they support innovation; C-suite slightly less so

The first key finding is that, while risk executives are bristling with confidence regarding their continued importance to their firm, the feeling is not mutual among C-suite leaders. A large majority of 87% of risk professionals said risk management in their organization supports or promotes innovation. Just 63% of C-suite respondents felt the same way. A substantial 17% of C-suite executives viewed risk management as provided a “needed brake” on innovation, compared to just 2% among risk professionals. 

More alarmingly, just 14% of respondents said they “strongly agreed” that their company had a clear process in place for dealing with the risks emanating from disruptive technology. Almost half (48%) either couldn’t say for certain whether a strategy was in place, or actively disagreed.

Unease around addressing disruptive technology risks

The authors argue that risk professionals are evidently missing a unique opportunity to stake out leadership positions in helping direct how disruption is managed. To assume this leadership role, they must do more than familiarize themselves with the terminology, but develop serious expertise, so that they can lead a conversation on the emerging risk of AI and what the company can do to manage it. 

By boosting their knowledge of specific digital trends, risk executives will be better positioned to contribute to senior leadership discussions about digitization - the broad term which, for some, encompasses almost all technological change and disruption. Risk professionals were asked what ‘being digital’ meant to their company, in order to gain a better appreciation of how they viewed such developments.  

Operational efficiency tops growth

Around 60% said that ‘being digital’ meant improving their capacity to meet customer expectations. Almost half agreed that it involved implementing technology to boost operational efficiency. Lower percentages associated ‘being digital’ with growth, such as enhancing their external reputation (10%), or doing business in a way which attracts more customers (32%).

This was followed up with respondents being asked to identify the three most interesting benefits they would hope to gain from accessing new technological tools designed to improve their own performance in identifying and managing risk. ‘Identifying emerging risks’ and ‘enhancing data security’ were the top two most sought-after benefits, closely followed by ‘improving emergency response and crisis management’. 

Respondents offered the broad hope that any technological addition to the risk management business would help them extract value from the huge volumes of data now at their fingertips. This offers unprecedented opportunity but also makes modeling the magnitude of the risk an extremely difficult challenge. Technology which advances analytic insight and can scour through immense datasets while highlighting only the most vital information is the industry’s Holy Grail. 

Risk executives seek tools to help with risk identification, management and finance

Yet technology which can accurately identify any and all risks on the horizon and draw up efficient and bulletproof response models would presumably replace the flawed humans currently in charge, or at least reduce their numbers. This is why the Marsh and RIMS report advises risk professionals to carve out a new niche for themselves as part of the leadership team discussing technology adoption. 

Despite being overshadowed in the analytics sphere, risk executives who are ahead of the curve on technology and market trends can help their firm develop strategies to manage both, with an emphasis on reducing risk. Cross-functional risk committees set the stage for precisely this kind of input from risk executives in strategic discussions around technology. 

Yet only a slim majority of 61% of respondents said their firm had such a cross-functional risk committee. Then, among those who answered ‘yes,’ a similar margin of 60% said disruptive technology was on the agenda “occasionally” – compared to 31% for “always” and 9% for “never”. Among those who answered ‘no,’ 35% said that their company should have a cross-functional risk committee in place, 39% said they conducted informal meetings instead, and only a small group of 8% said there was no need.

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