Every business pursuit is rife with risk. This should not necessarily be cause for alarm, for while risk is inescapable, it also represents the flip side of opportunity. When both are fully understood, the potential for growth can be astounding — as can the ability to prepare for or even sidestep the inevitable challenges that lie in wait.
Enter risk management. This critical field shapes every aspect of the modern business environment, ranging from regulatory compliance to product safety and even top marketing initiatives. Risk management professionals are incredibly influential — and as our perception of (and standard responses to) risks evolve, the already significant role of risk management will continue to expand. This means that many exciting career opportunities are well within reach of professionals with relevant training and certification.
What Is Risk Management?
Risk management is, at its core, all about threat. In a business context, this practice aims to identify where critical hazards exist, what exactly they involve, and how they can be effectively managed. These concerns are offset by the potential for growth. Risk management brings a standardized approach to this process, including an essential series of steps:
- Identifying risks
- Measuring and assessing risks
- Risk mitigation
- Reporting and monitoring
Why Is Risk Management Important in Business?
No matter the size, scope, or sector, every business faces some degree of risk. To ignore this would be foolish, as risks are often built into the very products or services that allow businesses to remain profitable. Risk management brings a refreshingly realistic and standardized approach to revealing and dealing with concerns of all types. Advantages include:
Minimizes Uncertainty and Loss
Every risk involves an element of uncertainty, and this alone can keep some businesses from seeking out opportunities for innovation. If those risks are quantified, however, they may no longer seem like an impediment to growth. Conversely risk management reveals when risk-taking is less prudent and, in those situations, can reduce the likelihood of sustaining significant losses.
Enhanced Decision-Making
Effective decision-making must be guided by a wealth of information, plus a framework for making sense of so many insights. Risk management optimizes this data so that leaders can more easily identify and consider the many facets of risk while still making crucial decisions in a timely manner.
Compliance with Regulations
Regulatory compliance is a core component of risk management. After all, failure to abide by rules and regulations could bring about many of the risks that businesses actively seek to avoid: fines, recalls, and even criminal charges. These potential penalties must be assessed, for while the ultimate goal is, of course, to comply with relevant law, it is also essential to understand the short- and long-term problems that could accompany non-compliance.
Boosting Stakeholder Confidence
Stakeholders deserve detailed information about potential risks. If they are not properly informed of these, it will be challenging to maintain rapport or develop trusting relationships. Through strategic risk management and effective communication it is possible to promote realistic expectations among stakeholders and garner their support when it’s needed most.
Business Continuity
Risk management and business continuity planning are closely linked. The latter ensures that organizations can continue delivering products or services at an acceptable level in the midst of disruptions. Meanwhile, risk management reduces the potential for these disruptions in the first place while also promoting thorough preparation for worst-case scenarios. After all, it is impossible to create or implement an effective business continuity plan unless potential risks are well-understood.
Reputation Management
Often, the greatest risks center around the potential for reputational damage. After all, negative public perception can bring about more long-term consequences than any one scenario or crisis. Hence, every assessment of risk must examine not only potentially difficult scenarios but also, how the public might react to them.
For example: in today’s complex digital environment, it is well-known that even the best-protected enterprises regularly suffer cyberattacks. Risk management can help safeguard against these breaches, but it’s also crucial from a reputational standpoint. Differing responses to the same types of attacks can produce dramatic disparities in customers’ perception, engagement, and loyalty.
Resource Allocation
While every risk warrants some amount of attention and strategizing, some are, by nature, more urgent than others. Risk management provides a strong framework for assessing and assigning importance to these various risks, so limited resources can be strategically allocated to stage the most impactful response.
What Is a Risk Manager?
Risk managers are responsible for determining how businesses can make progress toward a variety of objectives, even as they navigate operational, environmental, and regulatory challenges. These professionals evaluate both potential risks and the appetite for businesses or clients to withstand them.
What Does a Risk Manager Do?
Risk management is a comprehensive field that encompasses all efforts to identify and respond to organizational risks. Because the scope of the field is so vast, risk managers may need to focus on specific components of the risk landscape. Many work within extensive risk management teams or departments, but they may also interact closely with other types of finance or business analytics professionals. Key areas of influence include:
Risk Identification
Risks cannot be managed appropriately or mitigated until leaders or stakeholders realize they exist. Their presence may not always be obvious — but the most elusive risks can also be some of the most dangerous. Hence, the need for solid risk identification, which can uncover new areas of risk so that they can be assessed and analyzed.
This is where the risk universe — the full spectrum of potential hazards — is identified. From there, risks may be defined as core or non-core. These designations will reveal whether risks must be withstood to drive profits or whether they can potentially be eliminated altogether.
Risk Assessment and Analysis
Following identification, risks must be studied closely to determine how urgent they are, what could happen if they are not properly addressed, and what it might take to manage or mitigate them. This process reveals the specific and aggregate exposure of various risks. Examples of strategies for measuring and assessing risk include:
- Value-at-risk
- Earnings-at-risk
- Economic capital
Risk Mitigation and Management
Once risks are fully understood, the next steps involve mitigation and management. How this is accomplished depends on the magnitude of the risk and the previously identified risk appetite. Risk managers look to various resources for insight to determine how risks can be handled without negatively impacting business operations, cash flow, or employee morale. Depending on the situation, effective mitigation may involve selling liabilities, purchasing insurance, or using derivatives to hedge risk.
Risk Management Careers
If the framework highlighted above is any indication, risk management is a vast field that calls for extensive resources and expertise. To illustrate the wealth of potential that exists within this field, we’ve identified some of the best risk management jobs you could pursue once you earn your MBA in Finance:
Risk Manager
Risk managers serve as this field’s jack of all trades, although some specialize in areas such as compliance, information security, or safety practices. Many pursue industry-specific risk management positions after working for several years in fields such as investment banking, healthcare, or construction.
Risk Analyst
While numerous types of risks plague today’s organizations, risk analysts primarily focus on those of a financial nature. Risk analysis technically functions as a subset of risk management, but it also includes a variety of even narrower specialties, such as credit risk, operational risk, and regulatory risk.
Enterprise Risk Manager
Focused on promoting a holistic view of organizational risks, enterprise risk managers (ERM) use specific frameworks to identify the most urgent and relevant threats and opportunities, along with their potential impact and magnitude. Over the past several years, ERM has become a valued strategy for not only revealing potential risks on the horizon but also, highlighting the possibility of missed opportunities.
Fraud Investigator
Today’s organizations suffer considerable losses due to fraudulent activity. Fraud examiners and investigators apply anti-fraud frameworks to reveal when and where such schemes are most likely to occur — and which security strategies can be successfully implemented to limit such losses. As with other forms of risk management, this process follows a strong framework that includes a thorough risk assessment, including risk-tolerance limits and a holistic overview of both internal and external sources of risk.
How an MBA in Finance Prepares You for a Career in Risk Management
While multiple degree programs can impart the skills and knowledge that are relevant to the field of risk management, the best approach typically involves high-level training in business administration.
This is where an MBA in Finance can come into play. This is a highly respected degree, and while it can open up a wide array of job opportunities, there’s no denying its value for aspiring risk managers. Below, we’ve highlighted the most compelling benefits of earning this degree, particularly from the perspective of an aspiring risk management professional.
Courses Focused on Financial Risk, Management, and Analysis
One of the main advantages of studying finance at the graduate level. Diving into targeted coursework that outlines the myriad concepts and practices you will later encounter on a daily basis as a risk manager. A finance-oriented MBA builds a strong foundation in critical topics such as:
- Regression modeling
- Valuation techniques
- Efficient market hypothesis
- Risk-return tradeoff
- Foreign exchange hedging
Real-World Case Studies and Hands-On Experience
Theoretical mastery is crucial, but it means little if it is not accompanied by thoroughly developed critical thinking and problem-solving skills. These are best developed through real-world experience, which is a central component of any reputable MBA program. The modern MBA is all about practical application — so illuminating case studies abound, as do opportunities to participate in internships and other hands-on experiences.
One of the best and most integral opportunities within a finance-oriented MBA program? The Strategic Management capstone, which synthesizes insights from a variety of other courses to reveal how a variety of concepts, skills, and frameworks can be successfully integrated with the real world.
Build a Comprehensive Understanding of Financial Markets and Instruments
Risk assessments are far more nuanced and effective when conducted by professionals who thoroughly understand today’s complex financial markets. This is best developed with an MBA in Finance that provides thorough coverage of essential topics. Concentration-specific courses delve into the international monetary system and transactions, along with the current realities of the stock, bond, mortgage, options, and futures markets.
Develop Advanced Analytical Skills and Strategic Thinking
Analytical skills are crucial in every area of finance but are especially valuable in risk management. It is only through the collection and analysis of accurate and relevant data that professionals can make data-informed extrapolations about the potential for risk. Without an analytical mindset, risk assessment becomes little more than a far-fetched series of conjectures. Thankfully, analytical thinking is clearly developed through MBA coursework, which emphasizes quantitative skills.
Enhances Communication and Leadership Skills
Don’t discount the value of soft skills in risk management. Effective communication is essential for conveying complex insights about the risk universe and risk appetite. If executives, stakeholders, or even the public remain unaware of these risks — and the widespread damage they might incur — it’s unlikely that such risks will be taken seriously. Leadership skills are also essential, as they provide thorough preparation for senior and executive roles such as chief risk officer (CRO).
How to Become a Risk Manager Post-MBA
Your MBA marks the beginning of an exciting career trajectory that opens the doors to a variety of exciting opportunities. If you’ve identified risk management as your field of choice, however, you may need to clear a few more hurdles before you land the best positions. Follow these simple steps to streamline your career path — and to hit the ground running once you’re employed as a risk manager.
Leverage Networks and Resources
As an MBA candidate, you enjoy access to a rich professional network, complete with professors, advisors, and highly ambitious students. If you commit to building strong connections, you can expect to reap the rewards as you search for your dream job.
Once you’ve graduated, be prepared to leverage your newly developed connections. These contacts can provide valuable insight into the most compelling job opportunities. Strategic networking will become even more critical as you move into leadership roles, so get started early to ensure that you can make the most of these connections. Alumni networks are a great place to begin, but you’ll also want to expand your presence on LinkedIn and explore relevant professional organizations.
Earn Necessary Certifications
Your education should not end with your graduate degree. Continue your journey with certification courses. These provide valuable insight into top risk management strategies, plus details on cutting-edge solutions and technologies. While you will want to be mindful of your unique professional goals, these certificates are definitely worth considering:
- Project Management Institute (PMI): Risk Management Professional (PMI-RMP)
- Risk and Insurance Management Society (RIMS): Certified Risk Management Professional (RIMS-CRMP or RIMS-CRMP-FED)
- Information Systems Audit and Control Association: Certified Information Security Manager (CISM)
- National Alliance for Insurance Education and Research: Certified Risk Manager (CRM)
- Global Association of Risk Professionals: Financial Risk Management (FRM) or Sustainability and Climate Risk (SCR) Certificate
Pursue Ongoing Learning and Career Development
The risk management field is constantly evolving, especially as we enter the age of Big Data and machine learning. With these technological advances come a massive volume of information but also an even more vital need for effective risk management strategies. A solid framework will ensure that this influx of data is properly analyzed and understood.
Commit to long-term career development so you can continue to make positive contributions to this field. Top options for lifelong learning include:
- Attending risk management conferences
- Taking advantage of webinars and other online learning opportunities
- Working with (or acting as) a mentor
Stay Updated with Industry Trends and Regulations
As risk management evolves, you will need to make an active effort to remain up to date with emerging trends. Attending conferences should help, but there is no substitute for peer-reviewed journals and other professional publications. These deliver a wealth of research-backed insights. Economic-focused newspapers are similarly important, providing swift updates on financial markets and regulatory developments.
Prepare for a Bright Future in Risk Management
Do you envision a professional future in risk management? The MBA program at the University of Tennessee at Chattanooga’s Gary W. Rollins College of Business will equip you with the analytical and leadership skills you need to make your mark in this exciting field. Contact us today to learn more.
