The Chief Risk Officer and The Rhythm of Risk
Building on my recent blogs Risk Management = No Surprises, and particularly The Chief Risk Officer: The Conductor of the Orchestra of Risk Management, we now pick up on that theme and explore the Chief Risk Officer and The Rhythm of Risk in the business . . .
The concept and term The Rhythm of Risk is not my own but comes from a conversation I had with my friend Brad Jewett (a fellow OCEG Fellow) about fifteen years ago. At the time, he was the enterprise risk director of Microsoft (he is currently the CFO of Corel Corporation). I have expanded on this conversation in my thoughts below.
In the intricate orchestra of business, the Chief Risk Officer (CRO) is tasked with choreographing the organization’s steps around the rhythm of risk, ensuring that every movement is aligned with the company’s strategic beat and performance objectives. ISO 31000 defines risk as “the effect of uncertainty on objectives” as the foundation for this alignment, emphasizing that managing risk is not just about avoiding threats but also about embracing opportunities that contribute to achieving business goals. Here, we explore how the CRO manages risk within the business’s cycles, strategy, performance, and objectives, providing executives with the relevant risk information they need to make informed decisions. . .
- Setting the Tempo: Risk and Business Cycles. With its ebb and flow, the business cycle is like a musical composition with varying tempos. The CRO must understand these rhythms and set the pace for risk management accordingly. This means identifying the risks associated with different phases of the business cycle, from expansion and peak to contraction and trough, and aligning risk strategies to protect and propel the business through each phase.
- Composing the Strategy: Risk in Strategic Planning. Strategic planning is where the organization’s objectives are composed, and it is here that the CRO must integrate risk management into the broader corporate strategy. By understanding the strategic objectives, the CRO can identify what uncertainties could impact these goals and provide insights on managing them. This ensures that risk management is not a siloed function but a key part of strategic planning, contributing to the overall direction and success of the organization.
- Orchestrating Performance: Risk and Business Objectives. Performance metrics are the score by which a business’s success is measured, and for the CRO, it is crucial to ensure that risk management contributes positively to these metrics. The CRO must provide risk information that is not only timely and accurate but also relevant to the objectives against which executives are measured. This involves translating risk data into actionable intelligence to inform decision-making processes and drive performance.
- Synchronizing Movements: Aligning Risk Information with Objectives. The relevance of risk information is pivotal; it must resonate with the strategic objectives and the key performance indicators (KPIs) that executives use to gauge success. The CRO must, therefore, tailor the communication of risk insights to match the rhythm of the business, ensuring that it aligns with the cadence of the objectives being pursued. This tailored approach helps executives to see risk management as an integral part of achieving their goals rather than as a separate or competing agenda.
- The Crescendo: Leveraging Opportunities. In line with ISO 31000, the CRO’s role is not limited to managing adverse effects but also involves recognizing and seizing opportunities that arise from uncertainty. By providing a balanced view of risks and opportunities, the CRO can help the organization reach a crescendo of strategic success, turning potential threats into advantages that can lead to competitive gains and value creation.
In the rhythm of risk, the Chief Risk Officer plays a critical role in ensuring that the organization moves to the beat of strategic growth and performance objectives. This role is the composer who integrates risk management with business cycles, the strategist who aligns risk with corporate planning, and the conductor who ensures that risk information is in sync with the executive measures of success. Ultimately, the CRO work enables the organization to dance confidently amid uncertainties, turning the rhythm of risk into a pathway to resilience and strategic achievement.