How automation and analytics enable new ways of measuring and mitigating risk

Feb 22, 2021

by Brian Furness Global Consulting Finance Leader, Partner, PwC United Kingdom

Email +44 (0)20 7212 3917

by Gavin Hildreth Finance Benchmarking Lead, PwC United Kingdom

Email +44 (0)7595 609676

The automation of compliance and risk management tasks and processes offers a tantalising new future for finance, freeing up time to better understand and mitigate high-risk issues and adding value to the business. While technology-led transformation will bring many benefits to how finance departments manage risk and regulation, it’s an area we’re seeing significant opposition to change.

Managing an increased regulatory burden

In ‘Finance Insights – Reimagined’, our report published with the ACCA, we look at the developing role of finance as a strategic business partner and how the insights it provides from a range of data sources are crucial for an organisation’s success. 

The six capitals of integrated reporting – financial, manufactured, intellectual, human, social and natural – offer the opportunity to present a broader picture of the business than purely financial reporting. Increasingly important for understanding the impact of an organisation on a wide range of stakeholders, including shareholders and tax authorities, it has allowed finance to re-examine its role and be at the centre of the debate. 

While finance must help articulate organisational performance against its goals, it should also help manage the risk and regulatory considerations in emerging areas. For example, complying with regulations and laws on emissions and waste, working practices and data protection, inclusion, diversity and employee pay gaps can increase compliance costs. Understanding risks and associated compliance effort is critical to efficient and effective risk management. 

Automating more compliance work and introducing advanced analytics and AI to shift towards a more predictive, forward-looking and proactive control environment, will be essential for finance to manage the increasingly complex compliance burden and to measure and mitigate risk more effectively. 

Are you willing to take a gamble? 

Many finance teams continue to be reactive to risks and reporting compliance with detective controls rather than adopting a forward-looking and preventative approach. Embracing automation and AI for compliance and control work requires a change in mindset and an initial investment in skills and technology. But the alternative is a heavy regulatory load that inhibits the business and is less effective in managing risk in a fast-paced business environment where risk management must evolve rapidly, particularly for vendor and cyber security risk.

Tech-led developments enable a more forward-looking approach to mitigating risk. Advanced analytics can not only identify but can also predict process control failures. Predictive risk analytics can highlight suspicious anomalies. Duplicate or fraudulent payments can be quickly and easily detected by automated controls. Machine learning can be used to forecast high-risk deals. Armed with this information and level of automation, finance partners can create actionable responses and reduce risk. 

Investing in new technology also demonstrates an innovative approach to risk management and compliance beyond just financial KPIs, including areas such as intellectual capital, sustainability and environmental performance. This is increasingly important to the business, employees, customers and, crucially, investors. 

But the use of new technology is not the only change required. To manage risk effectively, finance teams must be comfortable sourcing, handling and exploring new data sets from non-traditional sources, such as operations or external data around social impact or data around employee and customer behavioural patterns and how they affect revenue streams. 

What happens next?

It’s important to recognise how technology can help you alleviate the compliance burden and manage risk more effectively. That means examining processes and identifying automation and efficiency opportunities. 

Overcoming resistance to change and historic behaviour will also be key. Increasing automation will reduce traditional transactional, compliance and control responsibilities. But this offers a chance to develop new ways to measure and mitigate risk. Upskilling your workforce, encouraging them to handle and explore new datasets and explaining the benefits of a proactive approach to risk and performance management will help the understanding and adoption of any new system.

Our risk and regulatory toolkit can help you achieve this change. But it requires a change in mindset and a balanced approach to risk-taking, supported by accurate data and automated compliance. Better data and advanced analytics enable not just regulatory compliance but also better business risk management, by providing actionable responses and giving executives precise insights into the traditional and emerging risks they need to navigate successfully.

Download ‘Finance insights – reimagined’ for more in-depth analysis of the development of the future role of finance.

by Brian Furness Global Consulting Finance Leader, Partner, PwC United Kingdom

Email +44 (0)20 7212 3917

by Gavin Hildreth Finance Benchmarking Lead, PwC United Kingdom

Email +44 (0)7595 609676