Why do financial risk professionals also need to study Enterprise Risk Management (ERM)?

Introduction: In the fast-evolving landscape of risk management, professionals dedicated to financial risk are increasingly recognizing the indispensable need to broaden their expertise into the realm of enterprise risk management (ERM). The intricate tapestry of risks that organizations face today does not respect the traditional silos of financial, operational, or strategic risks. This interconnectedness underscores why financial risk professionals should deepen their understanding of ERM. This article explores the compelling reasons behind this trend and its significance for risk professionals.

Understanding the Breadth and Depth of Risk:

1. Complex Risk Environment: Today’s business environment is a mesh of complexities driven by globalization, technological advancements, and dynamic regulatory changes. Financial risk professionals who confine their expertise to market, credit, and liquidity risk may find themselves ill-equipped to grasp the full spectrum of risks affecting their organization’s financial health.
2. Regulatory and Compliance Demands: With the proliferation of regulations like Basel III, Dodd-Frank, and the EU’s General Data Protection Regulation (GDPR), organizations are mandated to adopt a holistic risk assessment approach. Financial risk professionals need to understand how ERM frameworks can help navigate these regulations, which often transcend mere financial risks and require a comprehensive risk management strategy.
3. Strategic Decision-Making: Financial risk analysis is crucial for strategic decision-making. However, without the context provided by ERM, financial risk professionals might not fully appreciate how strategic initiatives can influence risk profiles. ERM education equips professionals with the knowledge to assess how financial risks align with broader business goals and risk appetite.

Integration of Financial Risk and ERM:

1. Holistic Risk Perspective: ERM provides a macro view of the risk landscape, integrating all forms of risk – financial, operational, strategic, and compliance. For financial risk professionals, studying ERM means embracing a more holistic view of risk that can improve financial risk predictions and management.
2. Quantitative and Qualitative Risk Assessment: Financial risk management is often quantitative, but ERM emphasizes the importance of qualitative factors, such as reputation and culture. For a financial risk professional, understanding qualitative risks can enhance the quantitative models by incorporating a wider range of potential risk factors and scenarios.
3. Improved Risk Communication: ERM emphasizes the importance of effective risk communication to stakeholders. Financial risk professionals armed with ERM knowledge are better positioned to communicate the intricacies of financial risks in the broader context of enterprise risks, which is crucial for board-level and cross-departmental discussions.

Advantages in Career Development:

1. Versatility in Professional Roles: Financial risk professionals knowledgeable in ERM become more versatile and can transcend traditional roles. They can engage in a wider array of functions within the organization, from risk assessment to strategic planning.
2. Enhanced Leadership Capabilities: The IRM’s Level 1 to 5 track to Fellowship coupled with a sound understanding and practical experience of ERM principles can groom financial risk professionals for leadership roles. As businesses increasingly recognize the importance of risk management in governance, professionals well-versed in both financial risk and ERM are better positioned for executive positions.
3. Competitive Edge in the Job Market: As organizations seek to hire risk professionals who can contribute to a robust risk management strategy, individuals with dual expertise in financial risk and ERM hold a competitive advantage in the job market.

The imperative for financial risk professionals to study enterprise risk management cannot be overstated. The ever-increasing complexity of the business and regulatory environment demands a more integrated approach to risk management. Those who choose to expand their proficiency beyond financial risk to encompass ERM will not only enhance their strategic impact within their organizations but will also significantly advance their professional development and marketability. As risk management continues to evolve and considering financial risk is a subset of ERM, the distinction between financial risk and enterprise risk will lead to a unified field of risk professionals who are adept at navigating the entire risk spectrum.

The Institute of Risk Management is the premier global body for ERM qualifications, offering a 5-level certification pathway to professionals in over 143 countries, including India, enhancing organizational outcomes through top-tier risk education and thought leaderships. Click here to View the IRM’s Level 1 Global Examination.