You Can’t Transform Risk Without Taking A Few Risks

Les Smith

Real-time and predictive analytics technology is enabling far greater insight into the performance of organizations and delivering better understanding of market conditions. When adopted in full, these technologies have the potential to demolish traditional silos and deliver a true real-time, enterprise-wide view of the organization, and provide a new understanding of the nature of the risks it faces. And as business networks become more digitally enabled, this view can extend throughout an organization’s surrounding ecosystem, allowing for even greater risk-management capabilities and enabling proactive risk-management strategies to become a standard practice.

The opportunity exists for finance to become the owner of enterprise risk management, delivering systems and processes that allow different parts of the organization to work together cohesively within an integrated framework.

However, for finance professionals in ANZ, there is still much to be done before such a role can be actively considered.

In 2017 Oxford Economics surveyed 1,701 finance professionals across multiple industries and four global regions, including 300 leaders from Australia and New Zealand, to uncover their attitudes towards their function’s changing requirements and challenges, and understand what it takes to become a finance “leader.”

The research revealed that while many ANZ finance professionals have a view towards increasing their influence over governance, risk, and compliance activities, they may need to first broaden their focus from the more traditional finance tasks.

A focus on risk

Clearly, risk management and compliance are significant issues for finance professionals in ANZ. Optimizing risk and compliance was likely to be amongst the top three priorities for 68% of Australian respondents and 67% of New Zealanders, ahead of the global average of 48%. This result was also well ahead of that for finance leaders, of whom only 52% considered it to be a top-three priority. Since it is doubtful that finance leaders would be dismissive of risk, especially as they rate themselves highly in terms of their influence in risk monitoring and assessment, this suggests that their focus has moved on to higher-value tasks such as driving strategic growth initiatives.

While Australian respondents were comfortable with their efforts in risk management, their New Zealand counterparts were lagging. Australian respondents ranked themselves on par with global leaders when it came to their influence on risk monitoring and assessment (99% for leaders versus 98% for Australians), but New Zealand respondents have some ground to make up, with only 80% rating their influence highly. New Zealanders were also struggling to assert their influence when it comes to ensuring compliance and enforcing policies, with only 70% giving themselves a high rating, compared to global leaders at 92% and Australians at 96%.

Striving for a collaborative approach

ANZ CFOs were well behind global leaders in terms of their collaboration with governance, risk, and compliance functions. While 76% of finance leaders collaborated on an ongoing basis, the same could be said for only 21% of Australians and 20% of New Zealanders.

However, alignment between finance and GRC was reflected in how respondents rated their interactions with the board of directors. In New Zealand, 84% of respondents indicated that their CFO made joint presentations to the board alongside their counterparts in compliance and risk – ahead of both finance leaders (78%) and Australian respondents (75%). New Zealand CFOs were also more likely meet regularly with the audit committee (58%, compared to leaders on 57%, and Australian CFOs on 51%).

However, this alignment did not translate to true collaboration for New Zealand respondents, as only 74% believed finance collaborated regularly with risk management or saw finance as vital to the risk function. When asked about collaboration with the compliance function, only 68% thought they collaborated closely, and the result was even lower for collaboration with internal audit, at 64%. All results were well behind those for Australian respondents, who recorded a result of 96% on all three questions.

Furthermore, when New Zealand respondents did collaborate with compliance and internal audit functions, they rated their effectiveness well below that of their Australian counterparts. This gap did narrow somewhat however for their regard of their effectiveness in collaborating with risk management.

Overall, in ANZ there is clearly much more finance professionals can do to collaborate with their GRC counterparts. ANZ respondents were well behind global leaders in terms of their effectiveness in GRC activities. While 57% of leaders rated themselves as very effective, this fell to 40% for Australian respondents and 32% for New Zealanders.

Evaluating the risks and the solutions

While the attitudes toward collaboration in risk management might differ, there was consensus regarding what the risks actually were. ANZ respondents were mostly in line with leaders in ranking macroeconomic factors amongst their top three key concerns, although ANZ respondents were significantly more concerned about rising costs/wages, and New Zealanders were also more concerned about business disruption due to new competition.

But the strong acknowledgement of these traditional risks might be drawing attention away from one that is emerging swiftly – cybersecurity. While 68% of leaders rated cybersecurity as one of their top three concerns, this fell to 64% for Australians and 58% for New Zealanders.

The barrage of regulatory changes that impact finance professionals was also a cause for concern in ANZ. An example are the new revenue recognition standards, IFRS, which will be a big change for both public and private companies. Just 6% of New Zealand respondents felt confident about coping with new regulations, compared to 15% of Australians – both well behind the 62% of leaders who felt confident in their capability.

Technology emerged as a popular solution to many of the risk-based challenges that organizations face, particularly those technologies related to analytics. For those respondents that ranked Big Data as critically important to the finance function’s successful performance today, 100% of New Zealand and 94% of Australian respondents nominated it as being useful to the finance function for optimizing risk and compliance. Those respondents that rated real-time analytics and predictive analytics as critical were also likely to rate these tools as useful for optimizing risk and compliance. It is likely that the adoption of these tools might go some way towards improving collaboration between finance and other functions, as they will build out finance’s usefulness across the organization, especially as the function moves towards the model of becoming an analytics hub.

The path to GRC leadership

Clearly there is much to be done in ANZ to strengthen finance’s capabilities in GRC, starting with a need to step up collaboration with existing teams. It almost seems paradoxical, but while ANZ finance professionals clearly have an eye on risk, they are taking a very traditional and siloed approach, and perhaps not thinking about how their role in GRC can evolve in line with the parallel transition of finance to becoming a true partner to the business.

While is optimistic to see the willingness of ANZ finance professionals to look to new technologies to support their GRC activities, first they must redefine their role and approach. Only then can they hope to become the owner of enterprise risk management.

Explore the Global study & ANZ insights now.

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Les Smith

About Les Smith

Working with organisations across the Asia Pacific region for over 20 years, Les holds a wealth of experience in Finance Transformation. As the Centre of Excellence lead for Finance & GRC in SAP, Les works with organisations to bring transformation theory up to reality with solutions from across the Office of the CFO (OoCFO) portfolio. Prior to SAP, Les specialised in performance management and Business Intelligence solutions, Health Checks, and Industry benchmarking on key performance indicators. During this time Les and his team delivered more than 50 strategic projects across 10 countries. With such a wide range of experience and strategic customer insight, Les understands how the Finance function can enable themselves to succeed in the Digital Economy.