Data. The champion of all left-brained people and the arch nemesis of all right.
Believe it or not, that’s old-fashioned thinking (including the brain thing…) – especially when it comes to risk management.
We’ve mentioned before that the work of risk professionals is a balance between an art and a science.
Yes, it requires passion, a willingness to experiment, and persistence, but the foundation of risk management is data. Analysis. Facts and figures. Without these as a skeleton, the art of it all is just some lumpy, fleshy bits with no basis.
Most risk professionals know this. But it can be all too easy for the scientific grounding to give way to finger-in-the-air guesswork.
It’s exactly this kind of guesswork that data helps eliminate – so let's have a closer look. Why does data matter in risk management?
And don’t forget, if you’re unfamiliar with any of the terms used here, head to our LinkedIn to check out our ongoing series of jargon busters.
Let’s start with the fundamentals…
Better data, better risk management strategy
Exactly what it says on the tin.
Data is most useful when it’s actionable. Otherwise, you’ll be stuck staring at all of your wonderful insights without knowing what to do with them.
You could, for example, utilise your data to reveal uncontrolled risks your team hadn’t previously considered.
Or, with the know-how granted by your data, you can begin to convert more of those uncontrolled risks into the controlled variety with proper strategising and forward-thinking.
They say that a goal without a plan is just a dream. Yes, it might be a bit Live, Laugh, Love, but the sentiment is applicable here: data provides the foundation of a robust risk management strategy.
"Modern businesses are swimming in data - but risk management remains quite data-poor,” notes Matt Rudd, Head of Product at RiskSmart.
“Even the most forward-looking risk practitioners only leverage the snippets of information available to them - but as with any business function, data is king.
“It can and should be used to inform an educated approach to controlling risk, highlight control failures, and establish a quantifiable risk strategy.”
Increased efficiency across the board
In 2023, efficiency is the name of the game.
This is most apparent when it comes to consumers. Just look at FinTech. The disruptors out there knew we were tired of being stuck in a rut when it came to personal banking, so they made a change.
In fact, by 2018, FinTechs were providing 38% of personal loans in the United States.
But it’s true for businesses and workers, too.
Every industry has old workflows and processes that people come to rely on, and risk management is no exception.
Spreadsheets filled with errors (up to 90% are), pricey software, audits and strategies that simply don’t add up; for many, data may well be the answer.
And not only do inefficiencies mean wasted time and energy, but they can also have more serious consequences, like burnout.
In a profession as crucial as risk management, the extra efficiency provided by data and automation can be the difference between success and failure. Controlled and uncontrolled. Safety and danger.
Data lets you spot patterns
Using data in risk management isn’t just about the here and now. It’s about forecasting and learning from the past.
Data isn’t always useful by itself, after all. You need to be able to learn from it through thorough analysis. It's about putting it in context.
With this new-found information, you can not only learn from past mistakes and ensure that they won’t happen again, but you can also begin to establish a more concrete risk roadmap.
With this in place – along with setting clear goals and creating your risk strategy – your risk management can easily scale with your business’s wider growth.
Improve your accountability
Accountability is vital in risk management.
We’ve seen even the most sophisticated risk teams descend into playground-level he said/she said after an incident has occurred.
No one wants to own up. Is it the risk owner’s fault? The control owner’s? Maybe the business’s entire risk management model and framework is to blame?
Data can help to remove blame culture, providing transparency and allowing mistakes to be learnt from.
By helping to inform frameworks and giving indications of urgency, allocating the correct responsibilities becomes much easier.
Not only that, but if an incident does occur, you’ll benefit from a greater understanding of why it happened and what can be changed next time.
Provides competitive advantage
One your boss will like.
Risk teams have been historically underappreciated – but what if you could help your business to understand the importance of your role with the correct benchmarking?
The companies out there that survived 2020 were the ones able to understand the threats on the horizon and react to them accordingly.
Charles Darwin had it right when he said that it’s “not the strongest of the species that survives, nor the most intelligent; it is the one most adaptable to change”. Hey, you can’t prove he wasn’t talking about RegTech.
As the landscape increasingly shifts towards automation and technology, too, your business can’t risk falling behind.
According to EY, a whopping “7 in 10 boards say their business will increase investment in technology for risk management in the next 12 months.”
Not only that, but they’re “looking for risk reporting that is predictive, focused on emerging and atypical threats and is based on external as well as internal data”.
Wouldn’t you like that to be you rather than your competitor?
Can you have too much data?
It’d certainly be a nice problem to have – but arguably, yes.
After all, you want to be the one in control of your data rather than the other way around. Insights and statistics should inform your risk management, but not at the expense of common sense, experience, and prior knowledge.
The problem for many is that analysing data properly can be time-intensive and costly.
As Deloitte note, “There are too many tools [for analysing data] and not enough people to configure, implement, and operate those tools properly”.
If only there was a simple, one-stop shop for all things risk with minimal configuration needed…
How can I include more data in my risk management?
The case for putting a bit more science into your risk management might sound like a no-brainer to you by this point. All in all, it provides transparency, lays the groundwork for risk strategy, and reinforces your decision-making.
No need to grab your lab coat, though. With the right platform, all of the above - improving your risk strategy, increasing accountability, maximising efficiency – is well within your grasp.
In fact, it’s kind of our bread and butter here at RiskSmart.
The data provided by the RiskSmart platform gives each risk a score, letting you know how urgently it needs your attention. We’ve boiled its functionality down to four key principles:
- Simplify: clean, accessible dashboards and reporting complete with centralised risk and control registers.
- Automate: easily track actions and control effectiveness monitoring.
- Supercharge: behavioural risk scoring alerts you to focus areas, with the option to replace or integrate alongside your existing GRC tech.
- Smarter: benefit from AI-led recommendations and data-driven insights.
Needless to say, we’re big on the importance of data in risk management.
You can have more of a read about exactly what we stand for here. If you want more insights like this delivered straight to your inbox, join the RiskSmart community.