While controlling has always been anchored in the corporate organisation, risk management was introduced relatively late. It was not until the German “Law on Control and Transparency in Business” (KonTraG) in 1998 that risk management found its way into the principles of corporate management. Controlling and risk management are critical pillars that ensure the stability and growth of a company. These disciplines, once separate silos with specific roles, are increasingly coming together to meet the new challenges of dynamic markets. But where do we stand today and what potential is there for tomorrow?
Status quo risk management and controlling
The current interplay between risk management and controlling reveals a landscape that is ripe for innovation. When looking at traditional methods, they often appear isolated - risk management focuses on identifying and minimising risks, while controlling prioritises financial management and reporting. However, the real art lies in not just allowing these functions to exist side by side, but in merging them into a symbiotic unit.
The necessity of this integration is obvious when one considers the rapid development of technological and market-related uncertainties. Companies that want to be successful in this new era must seamlessly integrate their risk management strategies and controlling processes to ensure a holistic view of risks and opportunities. Executives are learning to harmonise both areas so that they can respond effectively to the fast-moving whims of the market. And it's a new heyday for controllers and risk managers.
The question is: how can we best drive this integration? A culture is needed that not only supports the technical integration of data and systems, but also promotes organisational and personnel fusion. There is enormous potential for further development here, ranging from proactive upskilling and the use of technology to the reorganisation of corporate policy.
There is huge potential for future developments in the linking of risk management and controlling. It opens up possibilities that go far beyond the traditional boundaries of these disciplines and can define a new age of corporate management. An age in which risks are not only managed, but also understood as opportunities to be utilised. In this sense, the further development of these areas is not only desirable, but also critical for any forward-looking company.
Why risk management and controlling need to work together
Both controlling and risk management endeavour to ensure the stability and security of the company by monitoring, assessing and managing financial and operational risks. At the same time, both often draw on the same data sources within a company, such as financial data, operational performance indicators or market data. However, why is this collaboration that much more important?
Reflection and Blind Spots
Just how often do we hear of companies being surprised by unforeseen risks, even though the warning signs were already there? The joint battle between risk management and controlling can serve as the perfect bulwark against such "risk blindness". Controlling ensures order and structure in the finances, while risk management detects the invisible dangers. Together, they can develop the broader perspective needed to recognise the full scope of potential risks and act accordingly.
Creating synergy
Take it from the orchestra: when each section is perfectly attuned to the other, harmony is created. Risk management and controlling are the sections in the symphony of corporate management. Their instruments, when played in unison, enable executives to act confidently and proactively. Imagine if you could go into every business endeavour with a clear understanding of financial and operational risks - how much more confident would your decisions be? And with how much vigour would you approach them?
Learning from past mistakes
Take the example of the 2008 financial crisis, which showed how disastrous it can be if risk management and controlling do not go hand in hand. Many banks had controlling systems that kept an eye on profitability, but risk management was not integrated closely enough to highlight the dangers hidden in risky financial products. This scenario illustrates the importance of close co-operation to avoid such mistakes.
Possibilities and limits of harmonising risk management and controlling
Speaking of harmony. The harmonisation of risk management and controlling is a demanding process that holds great potential as well as specific challenges. By implementing this integration in practice, companies can achieve significant benefits, but must also recognise and address certain limitations.
Practical approaches to harmonisation
Shared data platforms: One of the most effective ways to harmonise is to implement common data platforms that can be used by both departments. These platforms should support a unified view of financial and risk-related data as well as integrated reporting and analysis. Such an agile approach not only improves transparency, but also the organisation's ability to respond to changing market conditions.
Regular strategy reviews: Regular joint reviews of the corporate strategy enable risk management and controlling to harmonise their plans and measures. These regular reviews help to synchronise objectives and ensure that financial and risk-related decisions go hand in hand.
Training and workshops: Organising joint training courses and workshops for employees from both areas promotes understanding and appreciation of the respective tasks and challenges. This strengthens collaboration and helps to develop a common language, which is essential for effective communication and cooperation.
The limits of harmonisation
Different objectives: Despite sharing overarching objectives, the specific short-term objectives of risk management and controlling can differ. While controlling often focuses on financial stability and profitability, risk management concentrates on identifying and minimising potential risks, which can lead to conflicting objectives.
Conflicting resources: Harmonisation often requires significant investment in technology and personnel development. In times of limited budgets, resource conflicts can arise, leading to tensions between departments and impairing the efficiency of harmonisation efforts.
Cultural differences: Risk management and controlling may have different departmental cultures that make integration difficult. While risk management may favour a more conservative risk aversion, controlling may pursue a more aggressive financial strategy. These cultural differences can hinder communication and cooperation between the teams.
Harmonising risk management and controlling offers numerous practical opportunities to proactively manage the business and make it more resilient. At the same time, it requires a deep understanding of the limitations and challenges associated with this integration. A strategic approach that takes these challenges into account is critical to the success of harmonisation efforts and the long-term health of the business. Once again, controllers or risk managers who can think outside the box are needed.
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