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What is Risk Management: the definition
Risk management is a task that includes all identification processes, assessment and control of threats an organization faces, from a financial perspective, but not only. Risk management can therefore be summarized as the corporate function that encompasses all the actions, methodologies and coordinated resources put in place in order to guide and control threats to a company’s the strategic goals. In fact, promptly assessing the potential impact of the different types of risk on business processes, activities, operators, products and services is essential to ensure the business-as-usual scenario, in the long term. The Risk Manager is the figure who focuses on the integrated management of corporate risks, or rather those that can negatively impact the strategic targets, in some way. When we talk about risks, we refer to those of a financial, operational, strategic, legal and compliance nature. Risk Managers, by definition, are capable of identifying and analyzing the potential risks that the company may incur, and then evaluating the extent and frequency of those risks. Once a detailed preliminary analysis has been conducted, they identify the best policy to optimize their management, in line with the choices made by the top management and with the financial capabilities of the company. After the risk treatment measures have been defined, Risk Managers are also responsible for verifying the progress of the process, the results and controlling them over time. In order to mitigate the risks, they also deal with any insurance for securing the company. Their duties also include the assessment of possible risks, and responsibilities for the company that are inherent in contracts with third parties, or the assessments of the life cycle of a company in specific cases, as during acquisition or merge operations. As regards, however, the corporate framework, the Risk Managers can be employees or act as external consultants.
In which areas is it applied? And why is it important?
All business areas that are exposed to risks require the activity of the Risk Manager who undertakes to mitigate the difficulties related to financial uncertainty, legal responsibilities, cyber-attacks, errors that depend on a bad strategic management, as well as contingent causes such as accidents, natural disasters, or threats to cyber and data security. This is a cross-cutting role that must have points of contact with various company departments and must be able to communicate with the managers of the various functions.
Why is Risk Management important in a company?
The role of the Risk Manager is essential for analyzing all these risks, assessing the probability of their occurrence and any economic impacts, as well as for setting up a control and safety plan and ensuring continuity of the company. In the absence of this role, the company exposes itself to the possibility of incurring unexpected (and therefore not easily resolvable) mishaps that can jeopardize the achievement of strategic goals. It is clearly perceivable the importance of having a role like that of the Risk Manager who responds to the need to know the framework of the risks, in order to anticipate possible scenarios. Businesses have learned to consider risk management as a tool not only for achieving their goals and removing obstacles, but also for greater competitiveness.
What do CROs (Chief Risk Officers) do? What tasks do they have in the company?
Chief Risk Officers (CROs) perform the same functions as Risk Managers and they are supervisors responsible for assessing the risks, at different levels, for the capital and profits of an enterprise. The business’ all-around security, and hence from financial to cyber-security, either of internal and external origin are under their responsibility Therefore, CROs deal with audit, compliance, fraud prevention, insurance, cyber-security, implementing the processes deemed most suitable for risk mitigation. CROs’ tasks include securing data and information, assessments on regulatory compliance, business continuity and disaster recovery planning.
How much do Chief Risk Officers get paid?
Given the importance of CROs within the company, and the money they help it save, protecting it from many threats, it is a well-paid role and it is usually equated to other managerial activities. The responsibilities of a Risk Manager are multiple, so the salary range is around 48,000 euros (according to what is reported by the Glassdoor portal). In any case, there may be differences related to the size of the company, its caliber, the location in which it is located and the catchment area.
How to become a Risk Manager
Now that we have explained what Risk Managers do and how much they earn, let's see how to pursue this career and how to train. First of all, we need to consider the skills needed to perform this role. As for the other jobs, also for that of the CRO, it is necessary to start from a good training. Risk Managers, in fact, must have an excellent knowledge of business processes and work organization, constant application in information analysis, interpersonal and dialogue skills. Furthermore, they must have transversal skills ranging from the insurance sector to business management, up to knowledge of the company's product sector. Risk Managers are required to know all plants, production cycles, contribution margins, all features of the products and services that are part of the company's core business, in order to keep them safe from any risks and to be able to promptly take action in case of threats. Are added to these basic skills the ability to analyze, to integrate data and information from multiple channels, the know how to have different methodologies and tools, as well as a good predisposition to networking activities.
The training course of a Risk Manager
Risk Managers require multi-faceted training and their skills can derive both from university or post-university training courses (specifically for the discipline of the Risk and Insurance Manager, or inherent in Economics, Engineering and Law courses) and from the personal experience developed within a business environment. There are several specific programs for the corporate Risk Manager, dedicated to professionals who want to improve their experience in the field, or want to start this activity from scratch. Furthermore, the ALP training course has been active since 2017, for the guidance of professionals towards gaining the European Rimap professional certification. However, continuous updating is fundamental, especially on regulatory and normative aspects, on the evolution of the insurance and reinsurance market, on the reliability of insurers and on new products. As information technologies have become an integral part of business processes, the risks associated with cybercrime and data breaches have increased the breadth of responsibilities of a CRO, it is important that they also have training in this field, so that they are able to immediately identify system vulnerabilities and potential threats to the company's data networks. A CRO may also be required to manage diligence and risk insurance for companies facing business situations related to mergers, acquisitions or particular contracts. For example, during the M&A processes, CRO consultancy could be requested to analyze the potential risks associated with the financial transaction and to determine the reliability of the risk management processes of target enterprises.
Article updated on: 09 August 2023
Written by
Talent Garden, Digital Skills Academy
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