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The Future of Risk Management Success or Oblivion

By Michael Vincent

28 December, 2006

The last three executive briefings have discussed the need for risk management and a possible pathway to the attainment of professional status.  November is the month of the conference where risk managers gather to discuss the dimensions and scope of risk.  This conference needs to be more than previous years; it needs to be more than a retrospective and networking opportunity.  The conference must set a new direction and set the function of risk management on the pathway to the attainment of professional status in every sense of the word.

Risk managers are at a crossroad; we can chose to continue the way we are a functional line management responsibility with little or no boundaries to the function. Each firm and position is defined and constructed differently, calling yourself a risk manager only leads to confusion when you are asked, "what's that?"   The average risk manager is aging and there are no logical successors on the horizon, the succession pathway is confused because of the lack of clarity for the function.

Other more formally recognised and defined professions are circling and seeking the chance to claim the mantle of risk managers.  This can happen if we do not set a pathway to the attainment of formally recognised professional status.  If we fail and the other professions succeed then companies potentially lose out because the full application of the risk umbrella is not implemented; rather a methodology is implemented that represents the winning parasitic discipline rather than the holistic risk management approach.

There needs to be a focused effort to define the functions of a risk manager; out of that effort grows a demand for formal qualifications that focus the training and education along the path to professionalism.  Numerous examples exist but probably the most striking is the profession of accounting.  The industry bodies defined the profession and demanded the level of qualifications necessary to practice the discipline in the workplace.  An accountant can define their profession and explain the boundaries.  In other words they as a profession dictate their functions and tasks to industry rather than the other way around.  That has to be the ultimate goal of the risk professional.

This process has commenced within the ranks of the risk managers and  the following broad areas of development need to be examined and developed to ensure the attainment of  professional status for a  "Risk Manager."

Future trends:

We need to define the functions and impose that definition across the profession so that the job description is similar amongst all firms.

Existing risk managers are on the whole an aging population with no clear succession path in place.  We need a group of young people to be groomed for the professional future.

The risk managers need to involve themselves in the strategic management process and understand that risk management is a strategic management tool as well as a tactical application.

The change from a function to a fully-fledged profession will involve the demand for formalised risk management education within the tertiary sector.  This has happened in the UK and will be demand driven in Australia.

Emerging developments:

There is a groundswell emerging with institutions from TAFE to universities starting to look at the concepts and trying to ascertain the demand for subjects and courses.

The function of risk management can truly claim an educational basis for legitimacy when the traditional range of academic courses are developed for the discipline.  This process can only happen in response to demand.

The tertiary sector and the industry organisations must co-operate to create a place of research and scholarship to ensure the emergence of dynamic theories that will drive the formalisation of the discipline.

The pathway to success:

In order to turn the function into a profession the educational aspects needs to be improved and formalised with the following components essential for success:

The barriers to success from an industry perspective:

Industry at times stands in the way of progress because of the "resistance to change" barrier that is all too often a hurdle to real and constructive change.  There is an old saying, "that generals are always trained to fight the last war."  Unfortunately industry leaders are sometimes in that same scenario and resist change to safeguard their own power base.  The most common barriers thrown up to dismiss the idea of risk management as a formal discipline are listed below.  If as a practicing risk manager you hear them you have a duty to answer and change the thinking process within your firm.

The educational barrier:

Academia is no different to industry and at times worse in accepting the need for change.  Most tertiary institutions are compartmentised into very narrow discipline areas; for risk management education to succeed the following barriers need to be broken down and the need for a changing paradigm of education accepted by traditionalists.  The following aspects need to be accepted and improved for risk management education to succeed in a formal sense.

Hope is eternal:

Risk management is not alone, in previous years functions have gained respectability and acceptance as legitimate academic and professional pursuits. Chief amongst these were:

And hopefully

The pathway:

In conclusion we are at the crossroads, if we make it happen it will, risk management can be a recognised profession with formal qualifications both from academia and industry; or it can fade away to be replaced with another discipline that has won the day.

The animal kingdom and industry have a lot in common in that the survival of the most prepared and fittest ensures long term survival of the species or entity.

About the Authors

Department of Accounting and Finance

Faculty of Business and Economics

Monash University