Navigating the evolving enterprise risk landscape — Key oversight skills for finance teams

The following is a guest post from Tom Hood, EVP of business engagement and growth at AICPA & CIMA. Opinions are the author’s own.

The landscape of enterprise risk is evolving at an unprecedented pace, driven by rapid technological advancements, globalization and increasing regulatory requirements.

Businesses today face a multitude of risks, ranging from cyber threats and data breaches to geopolitical instability and supply chain disruptions. The complexity of these risks is further compounded by their interconnected nature, where a single event can have cascading effects across an organization. Consequently, traditional risk management approaches are often insufficient, necessitating a more dynamic and holistic strategy that integrates risk assessment with overall business objectives.

Additionally, the rise of digital transformation initiatives has introduced new vulnerabilities. As organizations adopt cloud computing, artificial intelligence, and the Internet of Things, they must also contend with the associated security challenges. Regulatory frameworks are also becoming more stringent, requiring companies to demonstrate robust compliance and governance practices.

In this context, enterprise risk management is no longer just about mitigating threats but also about leveraging risk as a strategic advantage. By proactively identifying and addressing potential risks, organizations can enhance their resilience, foster innovation and maintain a competitive edge in an increasingly volatile market.

Many organizations find themselves ill-prepared for these risk events, both expected and unexpected, despite the increasing complexity and frequency of these disruptions. This lack of preparedness often stems from inadequate risk assessment and mitigation strategies that fail to account for the full spectrum of potential threats.

In fact, 48% of global business leaders indicated their organizations have faced a major, unexpected risk event within the past five years, according to a report we recently published in collaboration with North Carolina State University’s Enterprise Risk Management. This significant occurrence points to possible deficiencies in the organization’s risk management frameworks.

Overseeing the risk landscape

Risk management will not become easier over time. Given the rapid speed of change in the global business environment, complex risk issues will continue to emerge at rapid-fire pace. The report found that 66% of respondents sense the volume and complexities of risk increasing.

However, business leaders are not sufficiently investing in their organization’s risk oversight despite the hazards posed to business models by not doing so — only 32% describe their organization’s risk oversight practices as mature or robust. Now is the time for many organizations to give their approach to risk governance an honest assessment.

Effective enterprise-wide risk management should be one of the organization’s most important strategic tools. Unfortunately, many organizations view risk management as a distraction from more important strategic tasks, even though proactive understanding of risks can help business leaders keep strategic priorities on track for success.

Insights about risks before they emerge allow C-suite executives and Boards of Directors to navigate emerging issues with agility. In many cases, those risk insights can be used for strategic advantage. Unfortunately, only 17% of the study indicated that their risk management process is providing insights that create competitive advantage.     

Accounting and finance professionals have long focused on assessing and managing financial risks. However, the earlier mentioned risk landscape we are seeing today is pushing the profession to expand its remit and help their organizations improve their risk oversight and management capabilities. According to a recent poll of the Future of Finance Leadership Advisory Group, 43% noted the CFO and finance function oversaw ERM engagement for their organization.

Risk management: Must-have skills for the finance team

To successfully contribute to the risk oversight and management approach within their organizations, accounting and finance professionals need to develop a diverse set of skills.

• Analytical skills: The ability to analyze complex data sets and identify trends will be crucial for effective risk oversight and management. This not only includes understanding financial statements but also economic indicators, as well as industry and market trends to anticipate risks, their probabilities, their causes and the impact they would have on the organization.
• Strategic thinking: Accounting and finance professionals must develop and demonstrate the ability to look beyond the numbers, beyond finance and understand the broader business landscape. This notably involves aligning risk management strategies with the organization’s overall goals and objectives, understanding both its current position and future direction.
• Communication skills: Clear and effective communication skills are essential both for gathering risk-related information across the organization and delivering high-quality counsel to senior leaders, board members and internal and external audit committees. This includes presenting complex data in an understandable way and making persuasive arguments for risk mitigation strategies.
• Technological skills: To do a better job, accounting and finance professionals should be familiar with risk management software and data analytics tools, which can enhance their ability to monitor and manage risks. This includes technologies such as big data, machine learning and artificial intelligence, which can help save time, reduce errors and support strategic thinking.
• Regulatory knowledge: Understanding the regulatory environment and compliance requirements is a critical component of risk oversight and management. This helps in identifying legal risks and ensuring that the organization follows all relevant laws and regulations. Accounting and finance professionals will need to dedicate time to staying up to date with the latest regulatory developments and understand how this impacts their organization.
• Adaptability: As the risk landscape is constantly evolving, accounting and finance professionals will need to be able to pivot quickly and adjust strategies accordingly to both efficiently mitigate current risks and stay ahead of emerging risks.

In an era marked by unprecedented change and uncertainty, finance teams have a pivotal role in strengthening their organization’s risk oversight and management framework. As trusted advisors, accounting and finance professionals must lead the charge in transforming risk oversight and management from a reactive process to a proactive strategy, ensuring their organizations are well-equipped to navigate the complexities of the modern business landscape. But this is not just about mitigating threats; it is also about seizing new opportunities that arise from uncertainty and disruption.

When unforeseen risk events occur, the absence of robust contingency plans and rapid response mechanisms can lead to significant operational and financial impacts. Furthermore, this unpreparedness highlights a critical need for businesses to adopt more proactive and comprehensive risk management frameworks that not only identify and evaluate risks but also ensure resilience and agility in the face of uncertainty.

By doing so, organizations can better navigate the challenges posed by unexpected risk events and safeguard their long-term success. The time to invest in risk management is before the risk event occurs. Take advantage of thinking about that now to better prepare your organization for the future