What CFOs Want From Risk Management

As an enterprise approach to managing risk takes hold, risk managers are transcending their traditional role of insurance buyers.

Business is arguably more fraught with risk than ever before. As a result, risk management not only holds a spot on most CFOs' agenda, but it is also a top priority. That means CFO expectations of the risk-management function and of risk-management executives themselves are changing. And the key to success for those risk-management leaders is finding ways to understand and meet current expectations while watching for those expectations to evolve along with the risks.

The nature and speed of these changes are likely to be as unique as each company. Risk management in many organizations is still an isolated undertaking, which means only a few individuals can see what is happening across the entire enterprise. But the growing trend toward enterprise risk management (ERM) is slowly changing the dynamic and expanding the job of risk-management executives well beyond traditional expectations.

"The risk-management role has traditionally focused on insurance programs and managing physical and business interruption exposures," says Randy Marshall, managing director, financial risk solutions, with Protiviti in New York City. "It clearly is evolving away from that to focus on driving risk-adjusted return on invested capital and shareholder returns." For CFOs to fully understand the relative level of risk they are taking on to achieve a specific return, they need more risk-related information and support. "CFOs are looking for more from risk-management executives in order to calibrate the risk in the organization," he says.

To provide the kind of input that CFOs need, according to Marshall, companies should build a risk-management infrastructure with six elements -- strategies and policies, processes, people and organizational structure, management reports, methodologies for using data, and systems. When this type of structure is in place, the risk-management executive can feed more robust risk data to the CFO and other members of the leadership team. "The key is to develop a better way to think about risk," says Marshall.