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The finance view of strategic risk management


25-Jan-13 10:31

This article provides an insight from 4C Associates into a panel discussion the company hosted at The Economist’s CFO Summit 2013, which was held in London earlier this week. The findings shed light on the finance perspective of global risk, with implications for procurement.

 

"Over the past 10 – 15 years companies have expanded their operations across the globe and are now exposed to more threats, which need to be mitigated," said Edward Ainsworth, managing director at 4C Associates. "Despite this, taking risks remains an important element of any business and some need to be taken."

 

Speaking on a panel at The Economist’s CFO Summit 2013, Ainsworth explained that although companies are now more vulnerable to external threats, taking risks remains a key element in the development of any business.

 

Julian Metherell, chief financial officer and executive director, Genel Energy,agreed and highlighted the importance of presenting risks to company stakeholders. This approach can help businesses gain support for certain initiatives by clarifying the potential gains and losses of a project.

 

Each of the assembled panellists voiced their support for "risk registers" as means of managing threats. This approach consists in developing a list of the most relevant risks facing a company and working out the most effective way to deal with each. Metherell explained Genel Energy’s approach; "We have a list of 48 risks and a senior executive who owns each one, we review each individually, on a quarterly basis."

 

Mark Morris, finance director, Rolls-Royce warned against the dangers of implementing a "tick box" mentality in risk management. Constantly evolving threats require a flexible approach to analysis. Ainsworth added that in his experience it was often beneficial for businesses to seek an external viewpoint when examining emerging risks.

 

In this context, Jean Drouffe, group finance, risk and strategy director, AXA UK & Ireland shared some of the new threats which are surfacing in the insurance sector. The emergence of easily accessible data has led a number of companies into the insurance market. Amongst the most prominent, Drouffe listed Google, Tesco and car manufacturers. The risk of being supplanted in an increasingly digital market is one that insurance companies need to be constantly analysing.

 

When asked how a company should go about prioritising the threats facing a business, Metherell pointed out that there was no silver bullet. Taking the example of recent events in Algeria, he said; "I don’t think anyone could have foreseen the extent of the events in Algeria. How do you counter terrorism? [It is very difficult as terrorists] focus on high impact, low risk."

 

The panel concluded that although not all risks were predictable, a solid yet flexible approach was the best way to identify and then manage potential threats.

 

The 4C Associates blog, which tackles risk management and other procurement-related topics, is available here.


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