Risk Managers: Want to Play a More Strategic Role in Your Organization? Start With Analytics
After acquiring a small medical device business, a large technology company was considering whether to expand further into the sector. But was the reward going to be worth the risk? To answer that strategic question, the firm sought to quantify the additional risk in one of its main areas of concern: product liability. I’ll get to their answer in a minute.
You probably already use data, analytics, and/or technology in some aspect of risk management. But have you considered how risk analytics can support your organization’s strategic decision-making? If you haven’t, you’re not alone.
A recent Marsh survey during our The New Reality of Risk® webcast series asked participants to respond to this statement: “My organization’s senior leadership uses risk-related data and analytics to inform overall business strategy.” The results from more than 125 risk executives:
- 38% agreed with the statement.
- 31% disagreed.
- 31% said they weren’t sure.
That means there’s opportunity for risk managers to play a bigger role in shaping and executing organizational strategy — a point that was highlighted in Marsh’s 2015 Excellence in Risk Management survey. As the head of enterprise risk management for a large public entity told us: “There is significantly more interest, buy-in, and enthusiasm from our executives about looking at strategic risk rather than just operational or financial business risk.”
BUILDING AN ANALYTICS FRAMEWORK
Developing an analytics framework enables you to better understand the organization’s cost of risk, to quantify the volatility of the risk it’s retaining, and to identify the major drivers of risk. That insight can inform strategic decisions in a number of areas, such as:
- Where to expand and build new properties to limit catastrophe exposures.
- Where and whom to hire and what strategies to implement to reduce workers’ compensation and employment practices liability exposures.
- How to tailor selling strategies and which vendors to work with to limit third-party risk.
So what did our aforementioned tech company do about its expansion strategy? It turned to a risk finance optimization analysis, which demonstrated that the additional product liability risk presented by expansion would outweigh the earnings potential. With this analysis informing the strategy, the company ultimately decided against branching further into medical devices.
By applying such scrutiny to your business decisions and basing strategies in part on a solid analytics foundation, you can move forward confidently in today’s competitive marketplace.
To learn more about the benefits of data, analytics, and technology, listen to a replay of our The New Reality of Risk webcast.