Companies are increasingly turning to analytics and automation to identify opportunities and improve process efficiency. However, these evolving technologies have also revolutionized another critical business area: risk management.
Though still in the early stages, automating risk management is now an area of growing importance. With the increasing compliance and regulatory requirements, a growing emphasis on transparency among investors, and the global nature of commerce, the possibilities for improving risk assessment and mitigation abound.
AI and machine learning are transforming how businesses manage risk, stay accountable to shareholders, and remain compliant.
Risk managers know that the essence and complexities of their responsibilities require them to utilize the best tools available. Although the design of the first few IT automation solutions was not to manage risks, risk managers are repurposing them to improve the efficiency and speed of risk management.
Today’s automated risk assessments promise to deliver faster, better results by removing some of the monotonous and frustrating parts of risk assessments.
Why Manual Risk Assessments are Problematic
Spreadsheets and word processing software apps were the perfect solution for people working with financial data and contracts. Along the way, risk managers utilized them to improve how they store and analyze data for meaningful insights. However, they faced efficiency-related issues because the designs of the solutions were not for managing and accessing risk.
They, therefore, had to work around these setbacks by manually gathering data, standardizing it, creating spreadsheets, entering formulas for analysis, and finally creating risk reports. And with each business having its ad-hoc risk mitigation solutions, it meant dedicating a larger team to risk management, which made it a significant cost center for most companies.
A surface-level view of your company’s risk assessment process will quickly reveal the inefficiencies plaguing it. In the financial sector, the risk assessment process for a mid-sized bank requires each business unit to assess its risks, which translates to 10 to 20 business units performing independent assessments.
These many assessments make the work of risk managers hard because they have to follow up with every unit to ensure that they complete their assessments before gathering the relevant information for collation.
Automating Risk Management
In essence, robotic processing automation continues to streamline tasks once handles by people. However, in risk management, it is doing much more. For instance, consider the potential for improving your company’s SEC filings and the opportunity to offer better context around the data.
Producing public filings is an extremely manual process. However, new technologies are making it possible for companies to automate the filings as well as provide more accurate and timely reporting. Large companies, for example, could employ a couple of hundred people to offer the context around SEC filings.
Another area of focus that will benefit from automation is internal auditing, which is traditionally labor-intensive and often subject to human error.
Presently, there is no technology capable of automating individual business unit risk assessments. Automating this step requires an AI capable of understanding the different business environments and detect upcoming risks through observing all internal and external processes.
Hence, automation currently focuses on augmenting an organization’s risk management team. Risk experts can focus their efforts on detecting and assessing risks and their impacts, but automation has streamlined everything else.
The risk assessment process is now remarkably more straightforward due to this automation.
Control automation refers to automating controls traditionally performed manually. It should not be confused with control test automation that involves programming a script or robot to perform similar testing steps as those done by a control tester manually.
There are two primary ways of establishing the above two types of control automation:
- Robotic process automation (RPA): It takes a series of programmed tasks and repeats them within a fraction of the time
- Scripting: It applies logic to the data.
Control automation can significantly lead to savings for your organization. Risk management professionals measure an organization’s function compliance and audit coverage, the time it takes to execute and report, and the cost of compliance. When done correctly, control automation should significantly increase coverage while reducing the time taken to test and report. It should also reduce your overall cost.
Despite the advances made in automation and its application in risk assessment and mitigation, the technology is still years behind handling complex analysis and observations or addressing transactional risks.
The future of Automation and Risk Mitigation
The hope is that over time, risk managers will leverage automation and the results history they produce to address risks and audit issues before they occur. It will mark a complete shift in risk assessment, mitigation, and management.
Before then, companies must take the necessary steps in preparation for this eventuality. They include automating core business processes, creating a culture that prioritizes risk management, deepening the analytics skills of your staff, and making strategic technology investments.