As businesses strive to improve their risk management capabilities, there is a growing emphasis on the adversities inherent in enterprise risk management. Businesses are now rethinking their entire risk management process in context of current technological advancements and developing solutions that were previously unthinkable.
The New Standard
Whenever a paradigm shift occurs in technology, we must take a moment and assess the change’s true potential. There is a cycle associated with innovative technologies and their implementation, and it always starts with the technology being used to augment existing workflows rather than reinventing them. This was demonstrated with email – in the beginning, businesses used email in lieu of letters. There were no changes to business processes, and there was no new method for customers to purchase products – you could simply send emails in place of letters.
The full essence of information technology was not realized until about a decade later. Businesses recognized that their previous processes were predicated on the premise that communication was restricted and intolerably slow. Due to the fact that this assumption was no longer correct, it meant that we would have to rethink our entire business model and create more efficient systems. That is how e-commerce began, and businesses began to fully utilize the tools made available by technological advancements.
Enterprise Risk Management’s New Normal
The same shift can now be observed in our approach to risk management. The majority of technological advancements are currently being used to augment established risk management workflows. Several of the early enterprise risk management software solutions were created to aid in the acceleration of existing processes. However, this approach has reached a point of diminishing returns – a process can only be improved to a certain point, and we have reached that point with legacy risk management processes.
Therefore, the market’s newer ERM (Enterprise Risk Management) software solutions take a different approach. Rather than simply observing how risk managers work and developing solutions to assist them, developers are now approaching the problem with no preconceived notions. Rather than attempting to improve the efficiency of existing workflows, the thought process now begins with the goal of developing better workflows that are more productive than existing workflows.
Retrace Your Steps
This strategy of going back to the drawing board is already demonstrating its effectiveness. Enterprise risk management solutions are now available that focus not only on the risk manager’s role in risk management, but also on the entire organization. This has always been a challenge in risk management – risk managers cannot be experts in all business domains. There are numerous departments with employees with a variety of specialized skills, and we cannot expect risk managers to understand the risks associated with each of these domains.
Risk managers were either required to communicate with all stakeholders within the organization or to gather risk appetite from all departments. Both of these approaches were inefficient, and this issue could not be resolved by simply speeding up the risk manager’s work. Thus, the new risk management solutions are focused on providing a mechanism for everyone in the organization to communicate about risks and track any changes in risk levels. If a risk for a particular domain increases, notification is sent not only to the risk manager, but also to the domain’s or department’s stakeholder.
The Return on Investment for Risk Management Technology
As a result of these advancements, the return on investment for risk management technology has increased significantly. There was a time when businesses were required to invest millions of dollars in risk management technology to implement and maintain it, and the technology provided only incremental improvements. As a result, the technology was used exclusively by the largest enterprises, which could justify the high cost due to the enormous amount of risk management work they had.
However, the ERM software solutions that are currently available or being developed for release in the near future provide a significantly higher return on investment while being significantly less expensive to implement and maintain. This is partly due to the service model – most legacy vendors developed solutions that required on-site installation and maintenance. The cloud-based nature of newer ERM solutions simplifies their acquisition and implementation. Their upkeep is taken care of by the service provider, further reducing associated costs.
Risk management has become increasingly easier for businesses in recent years, and we can expect it to continue to improve. We will be able to exceed the performance ceiling in risk management and improve performance more than ever before due to technological advancements. For risk managers, these are exciting times.
