UK boards fear the spiralling of risk: A survey of 614 directors and managers in the UK showed that forecasting risks has become much more difficult than it was previously. The result is that UK directors see the need for increased reliance on technology for risk management. In order to increase the efficiency of financial analysis and management in a rapidly changing business environment, many UK organisations are turning to technology-based solutions such as blockchain, artificial intelligence (AI) and robotic process automation. Thirty percent of respondents say that forecasting is more difficult than it was three years ago. A majority agrees that determining risks in the future is likely to become increasingly difficult – when asked how difficult risk forecasting would be in three years’ time, 54 percent said that it would become more difficult while only 16 percent thought that it would become easier.
Forecasting and technology
The UK Institute of Risk Management explains that it is critical to establish a flow of appropriate risk management data throughout the organisation, particularly data relating to forward-looking key risk indicators. A coherent risk management programme, supported by solid internal control technologies, is the key to assuring risk forecasting in the future, the Institute says. Surprisingly, a majority of UK companies has no Board-approved risk-appetite policy, the survey shows. “As companies navigate complex strategic risks, senior management has not emphasised defining formal risk appetite statements and instead are relying on assumptions of a commonly understood implicit risk appetite,” the survey notes.
‘Assurance helps boards to sleep at night’
Assurance helps executives and boards to sleep at night, the Institute tells us.
“It aims to give confidence, possibly backed up by proven compliance with published standards, that what directors are told is happening, is actually happening. Automation which makes use of technological solutions may be the key to delivering such capabilities.”
One such automation technology is provided by predictive analytics, and a majority of respondents to the survey say that this is the use of technology most likely to increase risk management efficiency. Predictive analytics is a technology used to manage risk forecasting. Two-thirds of survey respondents believe that this technology will increase risk management efficiency. Other technologies that more than 60 per cent of survey respondents believe will increase the efficiency of risk management include:
- Risk Management Information Systems (RMIS)
- Compliance tracking
- Risk assessment tools
- Risk tracking tools
“Smart tools make a difference,” say experts at Ernst & Young in London, in a recent report: “Smarter tools: Deploying the right governance, risk management, and compliance (GRC) and robotics technology provides real-time visibility into risk events, control failures and access misuse, driving a more efficient approach to risk management and control.”
But the experts warn that misapplying the risk tools could raise new risks. “It is critical that organisations use best practice to embed the technology properly to achieve the greatest impact,” they add.
Taking the example of Risk Management Information Systems (RMIS), experts at the UK insurance firm Aon explain the value of this kind of technology in a study.
“RMIS is a technology system that enables you to capture, manage and analyse all your organisation’s risk and insurance data in a single, secure system. Using a RMIS, organisations like yours can improve department efficiencies and generate savings on your total cost of risk. More specifically, a RMIS automatically highlights to users, at the point of entry, values that may contain errors; ensures consistent synchronisation of data from multiple sources; provides context help for users; and builds adaptive questionnaires, forms, and interfaces that ask users for relevant data only, among other advantages.”
Similarly, compliance tracking applications can ensure that rules and regulations are being applied properly.
A recent report by the UK Financial Conduct Authority (FCA) shows that investment in surveillance and compliance systems is an enabler of better-quality compliance assurance. This includes the use of advanced data analytics and visualisation to help compliance discharge its mandate.
Using compliance automation, all systems at a company are continually checked for compliance. No manual effort, no human spot checks and no scheduled inspections are required. Instead, a single dashboard holds all of the information managers require on compliance status in one global view.
An automated compliance application should be quite straightforward in its usage. The application should collect data based on rules that it has been programmed with, according to the regulations to which the company is subject. So, first, the compliance policies are carefully determined by the general counsel and other experts (often independent experts). These policies are programmed into the application in a form which enables the software to collect and analyse the relevant data. Once the compliance application is put to work, there should be little chance of non-compliance escaping notice.
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Future of risk management technology
But the role of risk management technology is expanding, as McKinsey notes in a report. The digital transformation of risk management means a number of changes.
“Chief among them, risk management would capture and manage information from a broader and richer set of data, looking into non-traditional sources like business-review ratings online. It would automate the processes it controls, and work with others to do the same for decision-heavy processes. It would use advanced analytics to further improve the accuracy and consistency of its models, in part by greatly reducing the biases.”
Risk management would review and reshape its mandate and role in order to capitalise on its ability to provide faster, more forward-looking and deeper insights and advice. It would alter its organisational set-up, as well as its culture, talent and ways of working.
Diligent Board Portal automates compliance and security
Governance Cloud is Diligent’s ecosystem of cloud-based governance tools that provides a complete solution to enable the leading bodies of organisations to mitigate risk and govern collectively at the highest level. Seasoned in the governance space, Diligent has been in the leading position in the market for more than 15 years, offering the industry’s leading, most secure and intuitive board management technology. Our deep customer insights and heavy investment in R&D have allowed us to expand our offering to support the full governance journey. The Diligent Board Portal also provides the highest grade of encryption for all content so that directors may communicate and share documents in a completely secure environment.
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