How Automated Risk Assessment is Changing Risk Management

Risk managers know that the complexity of their responsibilities means that they need to use the best tools available. The first few information technology solutions available to businesses were not designed to manage risks, but risk managers took these tools and used them to improve the speed and efficiency of risk management as much as they could. Automated risk assessments promise to deliver better results in significantly less time. It accomplishes this by removing some of the most frustrating parts of risk assessments.

The Problem with Manual Risk Assessments

Spreadsheets and word processing software applications were perfect solutions for people who had to work with financial data and contracts. Risk managers used these solutions to improve the way they can store risk data and analyze it for meaningful insights but there have always been efficiency-related issues. Since these solutions weren’t designed for risk management, risk managers had to create their own workarounds and do a lot of manual labor to manage risks through these solutions. This meant manually gathering data from multiple sources and standardizing it, manually creating spreadsheets and entering formulas for analysis, and manually creating risk reports.

Basically, before a risk manager can manage and mitigate risks, they must fashion an ad-hoc solution out of software applications designed for other purposes. They must create spreadsheets that can serve as risk registers and databases and create templates for reports. Each organization may have its own ad-hoc solution so when a risk manager joins a new organization, they have to learn a whole new way of managing risks.

All these inefficiencies quickly add up and result in risk management being a major cost center for businesses. Organizations commit a significant number of employees to manage risks but get suboptimal results.

The Risk Assessment Process

A surface-level view of the risk assessment process will quickly highlight the inefficiencies that plague the process. Risk assessments for a mid-sized bank require every business unit within the bank to assess its own risks. This means that there are around 10-20 different business units, each performing their own risk assessment often using their own methods in a mid-sized organization. In larger organizations, there can be hundreds of business units – divided first by geographical location and then by the type of business they are involved in. A mid-sized bank will have different business units within retail banking, commercial banking, mortgages, business loans, and so on.

This means that there are 10-20 different assessments that need to be done in each quarter. However, this is just the beginning of the process. The ultimate goal of any risk manager is to assess the risks that are affecting the entire organization and present this information to the executive board in reports. The risk manager has to follow up with each unit and ensure that all risk assessments are completed on time. Once these assessments have been completed the risk management team needs to go through them all to gather all the relevant information for collation.

Automated Risk Assessments

We currently do not have the technology to automate the step of the process where each business unit assesses its own risk. Automating this step would require an artificial intelligence that can understand the business environment, the aims of the business, and detect any upcoming risks simply by observing all the processes occurring within and outside the organization that can elevate risks. We are, at the minimum, decades away from computing systems capable of such complicated observations and analysis.

That is why automation in the risk sphere is currently focused on augmenting the risk management team within organizations. The risk experts can focus on detecting new risks and assessing the impact of each risk but everything else is streamlined and automated. The risk assessment process is remarkably simpler as a result of this automation.

The business units assess their own risks using a risk and control library. Using an existing library of risks and controls ensures that all risks and controls follow the same nomenclature. This eliminates a common problem where different business units may refer to the same risks and controls under different names, resulting in the risk department being unable to correctly assess the impact of the said risks and controls. Once the assessments have been completed by the business units, they are uploaded to a central risk assessment platform.

Automated Risk Assessment Tools

Automated risk assessment tools intelligently use risk data available internally and externally to assess risks and related metrics in real-time. The job of these tools is to connect the dots to make the bigger picture visible to management. The data used for these assessments already exists in spreadsheets used by most organizations, but it is unusable for real-time analytics. Manually stored data needs to be cleaned for analytics, which makes real-time analytics impossible. Modern risk management platforms enable automated assessments and much more because all the risk data stored in them is standardized.

Another advantage of this process is that since all business units are using the same platform, the reports are also following the same template. The risk assessment platform can automatically extract the relevant information from these reports and roll it up to an enterprise-level report. The risk managers simply need to verify the report. Presenting the results of these assessments is easier as well since all the required data is available in one place.

Read also: The Importance of Real Time Risk Appetite Tracking

Read also: Revolutionizing Risk Assessments with Automated Control Management

Real-Time Visibility

Real-time visibility of risk levels is impossible when risk assessments are being handled manually. Automating the process gives the executive branch of the organization a live view of the results of the risk assessments across the organization. This data is also rolled up into executive dashboards that present the information in the form of intuitive graphs and charts. The end result of automation is that it is easier for the business units to assess risks, it is easier for the risk managers to collate information and create reports, and it is easier for the executive branch to accurately gauge enterprise risk levels.

Does your organization spend a lot of time managing controls? Get in touch with our risk and compliance experts to get a demo of risk assessment software and see how the control testing process can be improved for your organization.