As the world economy has been hit hard by the Covid-19 pandemic, organisations, especially, business enterprises are realising the importance of risk managers. Risk officers can help an organisation in framing and acting on the strategies to reduce and cope with the impact of an unforeseen threat similar to the one posed by the deadly coronavirus pandemic. In a conversation with EducationWorld, Hersh Shah, CEO, India affiliate of Institute of Risk Management (UK), speaks about the importance and scope of risk management during these testing times.
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What is risk management?
A risk is the possibility of an actual outcome deviating from a desired one due to uncertainty, and risk management refers to the potential or actual actions and decisions taken to minimise or eliminate that risk. In economic terms, risk is the potential effect of uncertainty on the objectives of the organisations. Enterprise risk management (ERM), therefore, is applied in strategy setting and is the process of identifying events and threats, and devising an action plan for adapting to various possible risk scenarios, to provide assurance on the achievement of the organisation’s objectives. ERM also serves as a tool for crisis management and business continuity, and goes beyond finance and insurance.
Why is risk management important?
Risk management is a holistic and strategic approach – all aspects of the business – from procurement and supply chain to sales, marketing and HR – are susceptible to innumerable risks arising from financial, geopolitical, technological, social, biological, and many other factors. Therefore, it becomes imperative for enterprises to incorporate ERM into their growth plans, for an agile and resilient response to internal and external threats so that the objectives of the organisation are not impeded. It is also important to remember that evolving scenarios can often yield opportunities as well, and a company that anticipates and plans for possible risks, is in a position to seize those opportunities. An organisation that can successfully overcome a risk scenario stands to gain in reputation and trust from all stakeholders.
How did the concept of risk management develop?
The concept of risk management finds its roots in ancient games of chance played with dice and bones, later evolving into chess and checkers, and eventually giving rise to the probability theory. Entities believed to be the predecessors of present-day insurance companies have also been documented as early as ancient Roman times. The formal study of risk management began after World War II, primarily for the use of insurance as a method to protect businesses and individuals from losses due to accidents. From the 50s to the 70s, companies began to realise the financial implications of managing risk with insurance, and sought to reduce risk through other avenues such as training and safety programmes.
How important is the role of a risk manager especially during the Covid-19 times?
It is precisely in times like these that risk managers step in. In today’s business environment, an effective Chief Risk Officer (CRO) needs to be a trusted business partner, and an integral part of the leadership team, motivating and guiding the organisation to a healthy risk culture. The CRO leads the risk team in creating strong relationships and collaborating proactively and ethically with business functions ranging from compliance, operations, customer service, finance and human resources to sales and technology.
CROs are the entrepreneurs that every business needs, to take strategic actions that have the potential to reduce impact from a range of threats and uncertainties, especially during a crisis. In the aftermath of the COVID-19 pandemic, the expertise of a CRO is likely to become extremely sought after.
What are the must-have qualities of a CRO?
Today’s CROs need the knowledge and skills to assess every part of an enterprise, influence other executives, and manage crises communications. They also need to maintain relationships with regulators and investors to provide transparency and reassurance about the risk compliance and readiness of enterprises. Leadership skills, relationship building and the ability to manage change are now vital attributes for the CRO.
Could you tell us about Institute of Risk Management and the courses you offer?
The Institute of Risk Management, headquartered in UK, is the world’s leading professional body for Enterprise Risk Management (ERM) qualifications and research. We are committed to expanding our 30-year strong global enterprise risk management ecosystem in India, with the highest standards of education and knowledge, to help improve outcomes for organisations through qualified risk professionals.
Our five-level global qualifications, which are open to working professionals as well as anyone who has completed 12th grade, can be pursued from anywhere in the world via distance learning, including directed self-study and online coaching. We also offer add-on certificates in digital and supply chain risk management. Individuals enrolling for the qualifications become part of a global community spanning 143 countries, with access to online resources, thought leaders, topical webinars and special interest groups. Candidates learn risk management best practices to enhance business performance and improve risk decision-making.
Employees of top companies such as Google, UBS, Tata Steel, Barclays, Tesco, Ministry of Defence (UK), State Bank of India and World Bank have obtained qualifications from IRM. IRM qualified risk managers in India are also working with companies like Deloitte, Edelweiss, Swiss Reinsurance, Larsen & Toubro and Aditya Birla Group.
Read: IRM India hosts webinar on importance of enterprise risk management
How does IRM’s course help upskill a professional?
Individuals can gain expertise in the risk management process and its application across the business. They can equip themselves with critical thinking and complex problem solving skills. They also develop capabilities for risk-based decision-making that are required in today’s uncertain world, and are able to demonstrate resilience in managing crisis-like situations, thereby enhancing strategic value across departments in an organisation, and fuelling their own career growth trajectories.
With the changes that have been taking place in the present-day business scenario, and heightened regulations, abilities such as adaptability, collaboration, time management and persuasion will be in great demand. Risk management is going to become a highly coveted skill in the wake of the COVID-19 pandemic.
What is the scope of risk management in India?
Although risk management has been a nascent discipline in India, companies across sectors are coming to realise its strategic value, especially due to the current pandemic. However, even before the pandemic, many Indian companies were already migrating from risk management compliance to risk-based decision making for sustainable business growth. The Companies Act 2013 places responsibility on key stakeholders, such as the board of directors, audit committees and independent directors, with respect to risk management.
How is a specialised risk management course different from crisis management that is covered in an MBA programme?
An MBA equips students with general management skills with a fair bit of understanding of various other areas, while a formal risk management qualification empowers students with the expertise and specialty as students are exposed to a macro as well as micro perspective of risk, its assessment, evaluation, treatment, control and oversight. The world of work demands a blend of skill, knowledge and wisdom. In recent years, many challenges have been faced by organisations, including cyber threats and international regulatory developments, which have pushed companies to demonstrate top-class, integrated, enterprise-level risk management practices.
While an MBA programme has its own benefits, an MBA along with a professional risk qualification will ensure that you become an effective leader with deep understanding of enterprise risk management.
Akhila Damodaran
Read: Study shows 94% organisations believe risk management will strengthen after Covid-19