Risk Management Lessons from the Future

"Just two words: scenario planning."

If the iconic 1967 movie "The Graduate" were remade today, Mr. Robinson would whisper this career advice to Dustin Hoffman's college-graduate character (recast as an accounting major) instead of "plastics" -- especially if the graduate had visions of one day becoming a CFO. Once Hoffman's rising finance manager reached the CFO seat in 2030 or so, it seems a safe bet that scenario planning would qualify as a defining organizational capability and one of his most valuable individual skills.

What other risk management skills and capabilities -- and lessons -- can we glean from looking ahead?

Judging from current trends, the management of emerging risks (by taking into account relatively new dimensions such as a risk's velocity and potential duration), human capital investment and risk analyses, sharper vision deeper into supply and demand chains, and an even more comprehensive and integrated approach to enterprise risk management (ERM) appear destined to qualify as must-have organizational capabilities 20 years from now.

Forward-looking finance and accounting professionals should seek out opportunities to strengthen these skills and capabilities -- especially scenario planning -- in the coming years. After all, the purpose of scenario planning mirrors one of the increasingly important mandates of the corporate finance and accounting function: helping organizations prepare for an unknowable future.

Sounds Like Sci-Fi

One need not look ahead to get the feeling that science fiction already has infiltrated the finance function; consider the title "Value Integrator."

Last year, IBM Corporation Senior Vice President and Chief Financial Officer Mark Loughridge used this term to describe the world's most effective and successful CFOs. His firm reached this conclusion after conducting discussions that examined corporate finance's role with more than 1,900 CFOs around the world.

These futuristic-sounding super-executives -- whose companies outperform the competition on revenue growth, EBITDA and return on invested capital -- are "skilled at navigating uncertainty … [and] excel at integrating information company wide, analyzing it and converting it to a competitive asset -- new intelligence." A sizeable chunk of this insight consists of what Deloitte, describes as "risk intelligence," information that enables leaders throughout the organization to make better decisions about managing threats and maximizing opportunities.

"Their more forward-looking insights are applied across the enterprise from strategic planning to operational optimization and are used to manage risk, reduce costs and spot new opportunities," Loughridge continues. "In short, Value Integrators have stepped up to a new role -- to help the business make all manner of enterprise-wide decisions better, faster and with more certainty of intended outcomes."

Risk management represents the primary source of this help. A recent KPMG study (with the forward-looking title of "A New Role for New Times: Opportunities and Obstacles for the Expanding Finance Function") of 450 global senior finance executives finds that 91 percent of respondents believe that improving risk management is an opportunity for finance to contribute more to business performance.