A comprehensive risk management process is essential to the sustained success of any business. The methodology of enterprise risk management (ERM) enables organizations to proactively identify and mitigate risks — including potential hazards and losses — before they become grave threats.
Management accountants trained in enterprise risk management are indispensable to their organizations’ daily affairs. Recent events — including cyberattacks, natural disasters and the pandemic — have brought the importance of their training to the forefront. Challenges to ERM preparedness typically come without warning, and businesses taking offensive action before disasters strike focus on business continuity rather than drastic response measures.
Make no mistake about it: reactivity is not an option. Proactive ERM work is the responsibility of every organization, and trained management accountants are key players in the process. The American Institute of Certified Public Accountants (AICPA) even pushed The State of Risk Oversight report in 2021 as a summary of findings regarding emerging economic, political, social and technological risks accountant professionals should anticipate.
Avila University’s Master of Business Administration (MBA) with a concentration in Accounting online program equips professionals with the basic risk management skills necessary for modern business protection.
Elements of a Successful Risk Management Strategy
As businesses face rapid change and increasing uncertainty, there are three fundamental ways management accountants contribute to ERM:
- Driving business alignment: aligning risk management with value creation and preservation
- Empowering ERM strategies with data analytics: generating insights and enabling proactive decision-making using data governance and risk modeling techniques
- Evolving the organization with cross-functional integration: enabling data integration through departments and functions across the organization using technology
Technology is the management accountant’s chief asset in delivering on these imperatives, particularly in the form of enterprise resource planning (ERP) software. Otherwise known as business planning or management software, these comprehensive business solutions often comprise modules that match business functions such as human resources, accounting, inventory, logistics, sales and marketing and customer relationship management (CRM).
An ERP solution integrates all these functions firmwide so that there is one centralized data repository across the organization. ERP solutions minimize ERM risks, including human error from data entered into disparate systems and managed by different functional leaders. For example, management accountants can confidently use the accounting and finance modules and features, knowing that the data is the same, recent data that every department uses and updates.
In addition, cloud-based ERP systems offer economies of scale in cybersecurity so that midsize and smaller organizations gain the levels of protection that would otherwise only be available to larger enterprises.
Why Management Accountants Are Critical in ERM
Management accountants often have the most insight into a company’s finances and supply chains. As outward-looking risk experts, they also provide direction to help manage risk and respond to uncertainty. It is of the utmost importance that management accountants understand their roles have evolved to transcend traditional finance.
To assess non-financial risks, they must work cross-functionally with the IT, HR and sustainability departments. By considering these risks in a broader picture, they can construct a comprehensive risk framework.
Five components form the backbone of ERM, and accountants play a role in each:
- Governance and culture: Management accountants must establish a proactive rather than reactive ERM culture and determine measures to be taken, processes for each employee to follow and systems of accountability.
- Strategy and objective setting: CFOs and their financial executives and management accountants must align overall business strategies with ERM across every business function.
- Performance: Accountants must have the tools and training to detect operational anomalies. Their education and experience should enable them to promote and support informed decision-making, otherwise known as profitable uncertainties, to help steer their organizations through the inevitable maze of ERM challenges.
- Review and revision: The granular role of defining and defending against potential risks, as well as continued vigilance and observation of a changing hazard landscape, falls to management accountants. The ongoing process includes extensive reviews of past performance, addressing process shortcomings and making continual incremental improvements.
- Information, communications and reporting: Accountants are ultimately responsible for researching, monitoring and producing information and communicating it throughout the organization. This role is essential to creating and sustaining an ERM culture.
A Curriculum That Develops Management Accounting Expertise
The Avila University online MBA with a concentration in Accounting program provides a thorough foundation in enterprise risk management practices to help graduates advance their careers in accounting management positions across various industries. Courses such as Financial Management and Marketing Management equip students with knowledge in decision-making, information and data management.
Learn more about Avila University’s online MBA with a concentration in Accounting program.