A thorough risk management is indispensable for any finance department. Especially in difficult economic times, there is even more pressure on this part of the financial profession. Moreover, estimating financial risks is increasingly dynamic and complex these days, for instance, due to increasing technological innovations such as crypto and blockchain. But which parts of risk management are essential in 2023, and what should finance professionals consider?
Financial planning and analysis
In an economically challenging time, it is important to get financial planning and analysis right. This means that, as a finance professional, you need to scrutinise business plans and investment decisions, and may have to adjust them. After all, you have to take into account reduced revenues, changing cost structures and lower profit expectations. This may lead to the decision to postpone planned investments and instead focus on optimising existing resources.
Cash flow issues within risk management
An essential part of financial planning is actively managing cash flow. Of course, in uncertain economic times, cash flow problems do lurk. It’s therefore essential for finance professionals to closely monitor and manage their organisation’s cash flow. You can tackle cash flow problems through proper inventory management, tighter payment agreements with customers or applying for financing from a lender, for example. This is where the latest technologies such as Artificial Intelligence (AI) and Machine Learning (ML) can help. These technologies increasingly enable finance professionals to gain real-time insight into their cash flow problems. It’s also possible to use AI and ML to build models that reveal future cash flow problems.
Besides visualising your own cash flow, it is also essential that you have your credit management in order. After all, it’s a must-have to be and remain a financially healthy organisation. Finance professionals can still make great strides when it comes to automating their credit management. By using advanced software to streamline processes and manual, inefficient and time-consuming processes for credit checks, invoice processing or preparing payment reminders will be a thing of the past.
All these points expose just some of the challenges that finance professionals face today. But it is also good to realise that financial risk does not always have to be a bad thing. Tough times can also actually boost innovations, so try to see risks precisely as opportunities. By actively looking for risks that might yield new cost savings or competitive advantages and tackling inefficient processes, adequate risk management can even lead an organisation to discover a new market or explore new partners and partnerships.
Risk management step by step
In 2023, there are new challenges as well as opportunities for risk management. By knowing what the risks are, how to identify them and deploying the right strategy, finance professionals are increasingly able to mitigate these risks, or even turn them into opportunities. Start with your risk management strategy today to get a clear understanding of internal and external threats, and don’t shy away from using the latest technologies for this purpose either. Step by step you’ll get a better grip on the risks for your organisation.