There are few elements in financial management that continue to garner more emphasis and targeted management today than controlling risk.  Risk comes in many shapes and guises; that’s why it’s such a key element in financial control solutions.  Recent Aberdeen Group research aims to reinforce how and why it is so imperative that financial management organizations give considerable attention to better risk management.

Financial controls are policies and procedures to track, manage and report financial performance, benchmark operations and transactions, as well as measure risk and trajectory towards strategic goals, and ensure compliance.  For the purposes of this knowledge brief, we will focus on and present capabilities found in dedicated financial control solutions that help to evaluate and manage risk.

The past fifteen years, approximately, has seen significant emphasis on risk management. Between increased regulations, emphasis on transparency, increases in disclosure, as well as the worst economic crisis since The Great Depression, effectively managing risk has become an even greater critical function in financial management. Controls help bring a cohesive approach to operations, bringing performance and risk management under one umbrella.

Where risk differs from all other components of control, is that it is essentially the one area within controls that, ironically, enjoys the least amount of control. Risk is internal and external. For instance, evaluating operations can reveal potential exposure to internal risk. Externally, controls around such risk might be reactive to legislative or regulatory changes, as well as economic challenges. Whether internal or external in nature – minimizing exposure to risk is of paramount concern. But insight can be found today with enhanced analytics, business intelligence, and financial control solutions to identify and reduce risk.

Monitor, Manage, and Mitigate

Financial control solutions provide the tools to piece together comprehensive strategies to achieve success and ROI. By negating the x-factor or variables that accompany risk, this puts businesses in better position to anticipate and adapt to risk based challenges. In Aberdeen Group’s 2016 Excellence in Financial Management Survey, details are provided that highlight the risk-management capabilities that Leaders in Financial Management engage more-so than Followers.

Aversion to risk is not merely a competency, it is often a matter of culture. If you doubt this – Just ask the board members of Wells Fargo today who, after their false accounts scandal, are mired deep in reputational risk and may suffer painful consequences at every level. Leaders were found to be 90% more likely to propagate a risk and compliance-aware culture, one where accountability and alignment to organizational objectives is supported (Figure 1).

Figure 1

Leaders are far ahead of All Others in their ability to perform “what if” scenarios and change analysis, allowing them to adapt and evolve to changes more fluidly, as well as measure a wider variety of potential outcomes. Leaders were 82% more likely than Followers to enjoy this capability.

Leaders were also 2.2 times as likely to have automatic notification when scheduled activities fail to occur on time, or when certain conditions occur. This capability relates directly to operational output performance as well as to risk-based tolerance. By setting thresholds, management can keep track of operations or transactions that surpass levels of acceptable tolerance, and take actions accordingly.

There is a clear-cut need for capabilities in financial control solutions that help mitigate risk. Controls has many moving pieces to it, but none quite so potentially turbulent as risk management. Financial solutions that employ the capabilities identified within this knowledge brief are significantly better suited to help you and your organization tackle risk both internal and external. In an uncertain world, these solutions will help your team better control risk.