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Risk management: Context is key

Prudent risk management can fuel stronger business growth, but companies must be willing to take a certain approach to enjoy these benefits, according to a recent PwC US report. To leverage risk management effectively, organizations must think strategically and also hold the right context.

Prudent risk management can fuel stronger business growth.

Institutions are striving to manage costs effectively, which frequently requires a proactive approach and great attention to detail. Because these organizations frequently face high expenses and strong competition, turning a profit often necessitates carefully managing the risk that costs will spike.

Buy-side firms might do well to take note of these findings. Such institutions are currently facing myriad challenges – including a tough compliance environment and vigorous competition – and these factors make managing risk effectively even more critical.

Lack of preparedness
While many organizations realize the key importance of effective risk management, many of them are ill prepared to cope with the numerous challenges that come their way. PwC polled more than 1,200 senior executives and board members in preparing the report, finding that 73 percent indicated the risks their companies face are increasing. However, only 12 percent of the organizations involved in the survey have adopted the processes needed to make them risk management leaders.

This environment is not getting any easier, as business risk exists both inside and outside organizations. Companies must strive to overcome risks that are interconnected and also changing constantly. One area where organizations can run into challenges is data management.

Rising data needs
Buy-side firms in particular must provide not only their shareholders, but also regulators, with more information than before. These institutions face more stringent reporting requirements than they did previously, and clients are demanding the use of more benchmarks and also benchmarks that have been specifically designed to meet their needs.

“73% indicated the risks their companies face are increasing.”

Supplying data that is accurate and error-free is paramount, as institutions need to concern themselves not only with the penalties that stem from failure to meet compliance, but also the potential of rubbing clients the wrong way by giving them information that is inaccurate.

What makes a risk management leader
Amid all these challenges, the PwC US report outlined a few specific suggestions that companies – including buy-side firms – can use. According to the report’s findings, risk management leaders have a strong tendency toward having a either a high or very high appetite for risk. In addition, these executives are willing to think of this risk as being a factor that can help fuel growth for their organization.

The majority of risk management leaders – or 70 percent percent – indicated they can conceptualize how different risks work together and affect each other, while only 23 percent of non-leaders singled out this ability. These leaders can also develop a holistic view of risks – which will help them fully comprehend both market opportunities and operational challenges – when making business decisions.

In addition to having this comprehensive view, leaders have incorporated risk management initiatives into their strategic plans by aligning the two. Finally, they take a proactive approach to managing risks, instead of waiting for challenges to crop up and then reacting to them.

If buy-side firms desire effective risk management, they can benefit greatly from forming a holistic view of their business challenges, being willing to take on risk, incorporating initiatives to limit these difficulties with strategic plans and finally leveraging a proactive approach.

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