Finance departments are no strangers to risk. But with risk management frameworks in place, teams can take back the wheel.
From stricter regulations to currency fluctuations, risks are numerous and present both an opportunity and a challenge for businesses in the financial services industry.
Potential risk extends far beyond mismanagement; organizations are exposed to external economic changes through investments, policies that could potentially cause legal ramifications, and possible data breaches that can strip companies of confidential information or intellectual property assets.
Although these risks may be daunting at times, there are benefits to successfully managing them, such as improving profitability and cash flow or strengthening organizational performance. Recognizing the issues associated with the business risks and proactively assessing and controlling exposure is critical for the continued success of organizations.
Business risk is a process problem.
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Organizations can benefit from the implementation of process-related security measures that decrease their level of vulnerability and proactively close potential holes in the system.
There is a greater potential for financial damage associated with failing to weigh every option and mitigating risks appropriately. As such, while navigating risk has always been an integral part of business success it is important to understand that a risk management framework can be a game changer for finance leaders.
Quantitative and qualitative financial risks
There are two categories of risk that impact the finance leader:
- Quantitative risks: These include market volatility, interest rate fluctuation, inflation rates, political uncertainty, or other economic factors.
- Qualitative risks: These are more centered around liability or recalls resulting from your products and services.
A risk management framework can help prepare organizations for adverse financial impact, and these can be managed in several ways: Identifying the cause and nature of the risk, analysing what risk needs to be retained, and determining ways to handle the risk that cannot be retained.
These strategies can be applied, and risks mitigated, through process management and automation.
Read how these 7 companies reduced risk with better processes.
Managing regulation and compliance risks with process
The importance of process management and automation in financial risk cannot be overstated. It helps organizations identify potential risks, optimize their procedures where possible, and ensure that they are meeting the standards imposed by regulatory bodies.
Process management and automation gives finance departments the benefit of predictability. Managed processes enable finance to visualize and anticipate obstacles before they arise, so proactive corrective measures can be initiated. Process automation further reduces risk by automating error-prone and manual tasks, minimizing the risk of data errors and missed deadlines.
For example, many companies undertake regular internal audits to help identify operational improvements that comply with changing regulations. This is particularly important when dealing with multinational business operations that have multiple national regulations to consider.
Process management and automation not only helps prevent a breach in compliance and the associated fines, reputational impact, and other consequences, but also allow organizations to reap the full benefits of those regulations too.
In today’s business environment, having clear, up-to-date, automated processes in place will help effectively manage risk, regulation, and compliance and is an essential ingredient for organizations wishing to remain competitive and compliant into the future.
Continuous process maintenance and governance
When processes don’t reflect current business practices, you end up with broken processes that are inconsistent with your organization’s way of working. These broken processes result in additional exposure to risk.
For example, every time you create a non-standard expense report it can be impossible to track and full of errors. Or, if your invoice payment process is undocumented it will slow down business, cause late payment penalties, create friction with the accounts payable department, and can cause conflicts with valuable vendors.
When finance departments choose to tolerate these business process problems, productivity is diminished and the company’s exposure to risk increases. If left unmanaged and unautomated, more and more processes will break over time. And as each one breaks, your exposure to risk adds up. Unfortunately, the catalyst to act is often a breach in compliance, regulations, failed audits, or even reputational damage.
Interested in what good process management looks like? Companies like Auswide Bank, which serves over 85,000 customers in the region, have been using business process management for some time to provide them with the best banking experience. It’s at the core of everything they do.
How can finance risk be managed with the help of a risk management framework?
Process management and automation are effective tools for finance leaders to capitalize on opportunities and mitigate risks for their organization.
With process management, organizations uncover potential issues that might otherwise go undiscovered and unsolved. Adding automation can bring greater efficiencies that would further mitigate those issues, and deliver a recipe for higher revenues, more profitability, and greater efficiency.
Examples might include streamlining expense approval or invoice processing, and keeping track of regulatory changes. Being aware of these examples can allow finance leaders to identify opportunities within the organization and make more informed decisions.
The benefits of utilizing a process management and automation platform are numerous, but ultimately this provides finance leaders with the tools they need to take an active role in managing their resources as effectively and efficiently as possible.
Ready to learn about building out your risk management plan?
The eBook titled Risk management is a process problem can help by exploring:
- Top business risks operations leaders should know about
- Tips for taking a holistic approach to managing risk
- How companies are using process management and automation to manage risk
