Risk management is no longer an annual, tick-the-box exercise. It's a regular, vital part of an organisation's business plan. To provide a framework and questions that risk leaders should consider, a new tool has been developed and published.
Jeff Parkison, CPA, CGMA, a US finance leader, is a co-author of the updated document, which is called "ERM Insights for the Financial Risk Leader". He explains why enhanced risk management is needed and how the tool and its checklists can help organisations.
What you'll learn from this episode:
- Why enhanced risk management is needed today.
- Three categories of questions, which can help individuals, managers, and organisations.
- The professional insights that have been added to the risk tool.
- The discussions that led to updating the risk document.
- How often Parkison reviews risk and opportunities in his role.
Play the episode below or read the edited transcript:
To comment on this episode or to suggest an idea for another episode, contact Neil Amato at Neil.Amato@aicpa-cima.com.
Neil Amato: Hello and welcome to the FM podcast. I'm Neil Amato, your host for this episode. I'm joined by Jeff Parkison, a US CPA who holds the CGMA credential. We're talking about a tool for risk leaders that has been recently updated. Jeff has co-authored that updated document, which has value for finance professionals globally. Here's the interview with Jeff Parkison.
Jeff, welcome to the podcast. First, an early subheading in the document for the finance risk leader says, "An Expanded Checklist on How to Enhance Risk Management." What are some of the reasons enhanced risk management is needed?
Jeff Parkison: Hi, Neil, and great to visit with you. Enhanced risk management really is something that's become day to day in a lot of financial leaders' job. It may not be part of their title, it may not be something that they're involved with organisationally to where they're over risk management, but a lot of what my team is doing is helping to find, what are these risks? What do we need to fund? Maybe either to mitigate a risk or to help us address that risk. These things are changing constantly.
I think probably at one point in time, you might go through and evaluate your risks once a year, and that was probably enough. I think we've moved into where it's more consistent, where you need to review risks from time to time and almost the [same] way [as] our budget process. My background is that I've been involved with financial planning for a municipal utility for probably about 12 years, being involved with their budget development, and so with that, we're not just even updating a budget once a year. A budget gets updated more often, and a lot of times that is in response to how have risks changed. Sometimes risks can develop really in just a few weeks and can certainly have an impact on our system and ultimately on our customers.
Amato: There are a series of questions that professionals can use to think about their organisations and their teams but also for themselves. What differentiates each section, and why was it important to have those categories in the risk tool?
Parkison: I think it really builds as you go through the risk tool. It's just appropriate for us to start from a "me" perspective, for me to look and see, what do I need to do personally? What do I need to evaluate to see what needs to be done for that first step? Like one of the questions is, have I identified skill gaps? That skill gap may be looking at myself and also maybe looking at my team, but it's a step in the process that I need to do personally. As I'm managing, as I'm leading a team, I need to look and see what are those next steps that we need to do to set things up.
I think it's just natural to see, am I personally learning? Am I personally growing before I can then look to see, are my team members learning and growing their skillsets appropriately? I think we've built this where it's almost multistep. I think it is a way that I would approach it, that initially we're looking at myself. What am I doing? What do I need to do better? Then we move on to really looking at "my team". We're going to slowly expand that. So we go from this office to now I'm looking at my team. Is the team working together as a team? Is the team looking to achieve items that really meet our strategic plan? Are we evaluating risks accordingly from a team perspective?
Then third, we move into "my organisation". I think we're just broadening the look, the evaluation. We're then broadening really the influence that we're going to have, and so I think by the time you step into the organisation, it's looking to see, we've already evaluated. Am I willing to make changes? Am I willing to make those steps to move forward, to first identify but then address some of these risks? Then we move on to, is my team set up for that? Then, ultimately, I like one of the questions in there. It says, is my organisation willing to make changes?
It's a key step to make sure that if you're not willing to make changes, then maybe there's no reason to continue through the evaluation of that particular change. But looking at that risk, you then have moved it into that organisational level to see then what can we do to really make this organisation do better at meeting that particular risk?
Amato: You mentioned the me-first approach, and that can maybe sound selfish. On another podcast, I had a conversation with Tanner Johnson, who is the global VP of finance operations at Nike. He mentioned a framework they had that started with "grow yourself". He challenged that, you know wondering why "grow yourself" was first. And someone said, "You can't fill up anyone else's cup if yours is empty." I'm not sure it's totally applicable, but I thought it was interesting that you put the focus on you, the individual, and what you need to think about first was important.
Parkison: I like that concept of growing and being able to fill up others' cup through that process. I think as we develop this, we may have not taken that exact approach, but I think it really was just moving from the inside out to say, and I make sure that I have identified some of these growth opportunities and then I can lead and teach others within my team and then ultimately influence the organisation as well.
Amato: In the risk tool, what are some of the new questions or themes addressed?
Parkison: As I mentioned earlier, we started with this leadership guide for the risk leader and then ended up pulling out this checklist and moving it into this new tool or this different tool for some of our risk leaders out there. As we were really looking at it, we began expanding the number of questions as we walked through it. This was one of the places where I was involved, was really walking through to see how I could apply it. Thinking how could it fit for my team, how could it fit in my organisation, and so we really expanded it, I think, from 27 to 38 questions.
Some of the pieces that began being added in were really linking in strategic plans or strategic goals and ensuring that not only are we helping to identify and mitigate risks, but as we move forward with those, we're really want to make sure that we're tying that in with the strategic objectives of the company. From a team perspective, are we making sure that as we are improving and making changes to processes or how we mitigate those risks, are we keeping the goals of the organisation in our sights? Is that something that we're continuing to really compare against? I think that was one of the big elements that we added some questions around.
There are also some others really intended around learning and growing. I think it's important that learning and growing can really have different elements to it. But I know there was a section or there's a question under "me" that is important to ensure that, am I learning? Am I growing the team? Am I growing those around me? That's the responsibility that falls back on me. I think an element then that moves in with the team is just ensuring that they have identified mentors.
That was a step that, again, looking at that personal development that it really probably went beyond. I think our initial scope with this was really focused on just the risk element piece of it. But then it turned into even more of identifying what are those developmental opportunities for our team? What can they do to improve? Do they have a training plan? Then just ensuring that those people are really in the right place for success of the company as well as success for the future of their career path.
Amato: Compared with the previous version, were there any other expansions?
Parkison: Neil, there was. This is probably my favourite piece of it was that we added a section labelled "Professional Insights From Seasoned Professionals", and we were able to get several viewpoints from a few people, primarily within the government realm, and so looking to see what insights, what things need to be considered as you go through each of these questions.
As you go through each of the 38 questions, we included this insight that may help you figure out how you would not only answer that question, but it also would provide some insight on maybe what you're needing to think about what's really considered within that question. It really allowed us to broaden the checklist even further. I really think provide additional information, provide education. Maybe in some cases even, here's some places to go look if you're interested or if you're needing to even further develop this particular item.
Amato: I understand you developed this tool while transitioning to a new role with the City Utilities of Springfield. First, congratulations. Second, can you give a quick walk-through of the development of this tool and the value your organisation discovered in it?
Parkison: Thank you, Neil. I appreciate that. Really, this came out of an early discussion that I had with Lori Sexton from the AICPA. As I mentioned earlier, when we were initially reviewing the leadership guide for the risk leader, one of the CGMA tools. As we were looking at that checklist, she and I had some discussions about how it could be expanded or how it could be used and gave me an opportunity that it was right about the same timing of when I was moving into a new role to where I was going to have additional duties.
What this has allowed me to do is really go through a lot of the steps. I'll say I need to go through the steps again, but I've gone through a lot of the steps as I've initially tried learning some of the individuals — really, my team members. Learning my team, learning more about what skills do I need to learn or what pieces of information or what processes do I need to learn to really better lead my team in this new role, as well as learning skillsets, learning how our teams work together.
I think like any organisation over these past couple of years, we've had some turnover, some due to retirements. Anytime you have changes, then you have that potential domino effect where we had people moving to new roles, and then people moving to their roles, etc. It's really given us a chance to look at the set-up of our teams and really make sure that we're working well together.
Going back to that conversation with Lori, this can be broadened beyond to where it's not just for risk management leaders. I think this is for anyone in the finance area because it really has me thinking through what can I do to ensure that my teams are set up for proper employee development? What can they do to move forward? Then, ultimately, what can we do to continue to move the organisation forward?
One of the items that we have incorporated, and this was something that I actually added to the checklist, because it was a process that we already had in place here at City Utilities, was reviewing our opportunities and risks from time to time. I have a spot on my calendar where once a month or every other week, I have a reminder to go and review our opportunities and risks, and we look at that really within the terms of our budget, what things are out there that may be opportunities? Meaning we may have either a reduction in expenses or an influx of revenue, or we may have some risks that are going to result in additional spending.
We keep that on a spreadsheet, and so we can see it anytime. Here are some of those items that may be something that we need to be concerned about but at least kind of have that catalogue of, like I said, opportunities and risks. They're more short-term. They're things that really through the rest of the budget year, and so that was one of the items as I worked through the checklist, as I worked with others on those professional insights, and it certainly was a team effort. It helped me to [say], "this needs to fit in here".
I think really this checklist is a process that I will go through. We're getting ready to enter our performance appraisal review process. It has some elements that will fit into that. I think it has elements that really can fit into multiple parts of the year to where you don't pick this up once a year and you set it down. I think this checklist has some elements that really can be looked at multiple times a year and really just to make sure that you're moving forward, you're moving your people forward, and ultimately you're moving your organisation forward.
Amato: Jeff, I think that's a good spot to end on some great insight today. Thanks very much.