4 tactics to manage risks from rapid innovation

Rapid innovation

Technological innovations such as robotic process automation (RPA), blockchain, and machine learning are providing opportunities for finance leaders to redefine their roles as risk managers.

Finance leaders are uniquely positioned to derive strategic insights from the abundance of data the new technologies generate, but managing the risks they represent is challenging, according to a Dun & Bradstreet survey on the so-called risk revolution in finance. Of the about 1,100 finance leaders from companies of all sizes who participated in the survey, 38% were concerned about their company’s ability to monitor risk in their customer, supplier, and partner bases. Forecasting or predicting risk was the second biggest challenge.

To overcome barriers such as disparate data, lack of data integration, and organisational silos, finance leaders should focus less on processes and more on lending their experience and judgement to developing strategies for profitable growth.

“The risk revolution we are seeing in finance is centred around transformation,” said Roopa Baboota, CPA (Canada), a chartered accountant and financial internal audit manager for Google. And transformation is absolutely necessary, she said, “to stay aligned with constant changes in the macro economic environment companies are operating in, and heightened scrutiny over compliance matters.”

Although most companies are using data to manage risk, the survey found, more than half report difficulty centring their risk strategies on data. More than 60% of respondents said their organisations still collect data in silos; if data is shared, it moves upward or outward and not laterally across teams.

The tools most respondents were using with the most sophistication were self-created analytics (58%) and credit reports (51%). Less than 20% reported using machine learning, automation, artificial intelligence (AI), and blockchain.

How to manage the challenges

The report’s authors and other experts made several suggestions for finance teams to take strategic action amidst this rapidly changing environment.

Think big. Finance leaders may believe the most prudent approach to modernising their systems is to start with small pieces, but Dun & Bradstreet experts challenge them to think bigger, taking stock of the organisation like an outside observer or even engaging an outside firm to help imagine the larger strategy.

Once a vision is in place, it’s OK to start with small phases.

“The process of aligning people, process, and technology is cumbersome,” Baboota said. “It can be slow, require intensive programming, and onerous to find the right resources and training to support.” A small initial victory can build confidence and can be used as a pilot for bigger steps moving forward, she said.

“Focus on the lowest-hanging areas of opportunity for your business, but have a long-term plan in place,” Dun & Bradstreet experts suggested.

Embrace automation. Automation can reduce operating costs and highlight new opportunities for growth by syncing data from numerous sources, according to the Dun & Bradstreet report.

“Being able to make sound business decisions using fact patterns, data analytics, and robotic process automation can move things along quicker, as well as produce the most up-to-date information,” Baboota said. This can also build credibility with stakeholders, she said, which of course supports the value of the finance team.

For those concerned about how automation could impact jobs, according to projections from Gartner cited in the Dun & Bradstreet report, AI such as automation may result in a net jobs gain by 2020, eliminating 1.8 million jobs, but creating 2.3 million new ones.

Letting the bots take the lead on tasks like transactional processes can allow finance professionals to devote resources to the big picture, or the “art of finance” rather than the science, the report suggests.

Generate support for new technology from all levels. A lack of buy-in for a new system or technology can slow or completely sink even the most admirable efforts. To ensure success, communicate the benefits of the change to all levels of the organisation so those involved can and are willing to contribute the resources needed to make it happen.

“Things like lack of resources, lack of time commitment, unclear responsibilities, and no management buy-in will impact the success of using technology,” Baboota said. “It is important to have a defined clear business purpose to help align with all stakeholders and ensure that you are properly equipped to execute. It will take extra time to influence and demonstrate the value of the technology, but it will be rewarding once achieved.”

Hit the books. With new applications of technology bubbling up every day, understanding how they work and their capability for forecasting risk or identifying potential growth opportunities might be a steep learning curve. It also may be difficult to step outside the status quo and adopt a relatively new or unproven method, but this also creates opportunities for creativity and innovation, Baboota said.

“Researching the type of data, metrics, and inputs that will provide business insights is critical to ensuring successful utilisation of technology,” she said. “The areas of blockchain, AI, and RPA lack the regulations we are used to with traditional methods, which creates uncertainty. Try to keep this in mind when doing your research, but also use it as an opportunity to benchmark in the industry and other companies to be creative and build for the future.”

— Samiha Khanna is a freelance writer based in the US. To comment on this article or to suggest an idea for another article, contact Sabine Vollmer, an FM magazine senior editor, at Sabine.Vollmer@aicpa-cima.com.