The vital role of risk management in building trust and driving success

Rebecca Watson Date published: Feb 13, 24

"We don't manage risks so we can have no risk. We manage risks so we know which risks are worth taking, which ones will get us to our goal, which ones have enough of a payout to even take them."

Alla Valente, Senior Analyst, Forrester Research

The world of business is a complex one, filled with a variety of threats. The responsibility of a risk manager lies in recognizing, evaluating and controlling these potential pitfalls. As the guardians of an organization's capital, earnings and operations, risk managers tirelessly work to ensure the smooth sailing of the organization on the turbulent seas of uncertainty.

But could 2024 be the year that risk managers transcend this role and become the linchpin for strategic organizational success? Ideagen's latest research report, "2024 Trends: The year to invest in trust", reveals that in 2024 more than ever before, there will be far-reaching benefits of increased transparency and accountability in businesses.

So what role do risk managers play in this? 

Risk and trust are intrinsically linked, as an organization must effectively manage and mitigate potential risks to gain the trust of its stakeholders. It serves as a fundamental building block of success in any industry. Without trust, employees may hesitate to take calculated risks, customers may be wary of engaging with the company and investors may be reluctant to provide necessary funding.

Today’s risk landscape is more interconnected than ever before, in the outside world and within each business itself. A risk that occurs in one part of a business could impact multiple other parts of the company, in ways that are unexpected. Risk managers play a crucial role in bridging the gap between the boardroom and the frontlines. They help to integrate risk management practices across the business so that there is a joined-up approach to interpreting risk and implementing robust controls. They also provide a holistic view of risk and how it impacts the organization and its stakeholders.

Without this assurance, it would be impossible to trust that an organization has the right processes and controls in place to protect its stability, its stakeholders and its reputation.

Decoding the role of a risk manager 

At its most simplistic level, risk management involves five key functions.

The first is identifying potential vulnerabilities through thorough analysis of operations and processes, considering both internal and external factors.

The second function is assessing risks by evaluating their potential impact and likelihood. Prioritizing risks based on significance, effective strategies are developed to manage or mitigate them.

The third function is mitigation, where risk managers implement controls to reduce the likelihood and impact of identified risks. This includes developing comprehensive plans, policies and procedures to ensure preparedness.

The fourth function is compliance and regulation, ensuring adherence to relevant laws, regulations and industry standards. Risk managers stay updated with changes and implement necessary measures for compliance.

Lastly, risk managers provide training and education, raising awareness of potential risks and fostering a culture of risk awareness and accountability. They educate employees on risk management practices.

It's easy then, to see the importance of the role in building organizational trust.

Building trust: Outcome and benefits 

Our research found that in the next 12 months there will be an increased focus on operating margins, shifting consumer habits and cyber threats. Other challenges that continue to sit high on boardroom agendas are the rapid complexity of ESG reporting, skills shortages and geopolitics. So how can risk managers feed into this narrative?

Consumer trust

Trust serves as the cornerstone of every successful business, but through proactive risk identification and management, organizations foster trust with consumers who gravitate towards companies that demonstrate a commitment to risk management and security. This is especially true in industries where companies have access to large amounts of our sensitive data – for example, banking and insurance. Companies in this sector are also trusted to advise their customers in a way that is ethical and legal.

Companies that prioritize data protection and privacy inevitably garner the trust of their consumers, that much is obvious, but the findings of the 2024 Trends report showed that consumers want, and expect, more personalized journeys, creating a different type of data risk. Data that relates to our personal habits and routines could be of value to people who want to use that information for criminal intent.

And it goes without saying – any sort of data breach can be catastrophic for a company’s reputation when it comes to trust.

Profitability and resilience

Effective risk management contributes to profitability by minimizing operational disruptions and financial losses stemming from risks. By implementing strategies that mitigate risks, organizations can operate efficiently and steer clear of costly incidents such as cyber attacks, compliance violations and supply chain disruption. Our research identified these are perhaps the most significant areas of concern for businesses in 2024, not just from an operational perspective, but also safeguarding an organization's reputation and trust with service users and stakeholders.

"It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently."

Warren Buffett, Founder Berkshire Hathaway

Environmental, social and governance (ESG)

Risk is no longer just focused on protecting financial assets. Within the realm of ESG, risk managers play a vital role in ensuring that organizations fulfil their environmental, social and governance responsibilities, therefore building trust with stakeholders, investors and the broader community.

ESG is a great example of how the risk landscape is broader and more interconnected than ever before. The risks are not confined to one place. ESG policy can cover gender pay gap reporting, modern human slavery in the supply chain and community impact, as well as environmental issues. Depending on the industry in which you operate, stakeholder interest could cover any or all of these things.

Understanding how to develop company policy around ESG, how to set targets, and how to report them, is complex – it involves the whole organization, and large amounts of data. But this is where enterprise risk management can play an essential role with their holistic view of risk and their ability to communicate the data in a way that adds value.

How can you do more to invest in trust?

In short, the research that underpins "2024 Trends: The year to invest in trust" highlights that when it comes to protecting margins, building strong bonds with customers and navigating increasing threats of cyber criminality and rapidly evolving ESG regulations, the currency of trust is more valuable than ever.

Instrumental to that success, are risk managers, building confidence inside and outside your organization. Their proactive approach to identifying and managing risks, contributes to the organization's overall resilience and ensures that trust is maintained even in challenging situations. Organizations with an ambition of transparency, accountability and profitability need to ensure risk managers are recognized as key players in achieving organizational objectives.

Download the full 2024 Trends report here.