Magazine article Strategic Finance

Risk Management: It's What We Do!

Magazine article Strategic Finance

Risk Management: It's What We Do!

Article excerpt

We management accountants are increasingly being asked to play more important strategic roles in our organizations, collaborating with our cross-functional partners in defining strategies and objectives, implementing and executing these plans, and ultimately delivering sustainable stakeholder value. To that end, management accountants play a critical role in collaborative decision making, execution, and accountability processes in which solid risk management and internal control are fully integrated.

But in some organizations, risk management and internal control (RM/IC) activities have deviated from their original purpose: to support management accountants and their business partners in setting and achieving their organization's objectives. Instead, they have almost become objectives in their own right rather than serving as useful support tools. In addition, management accountants are often distracted by typical RM/IC compliance requirements that have little direct relation to their everyday work.

In this article, which is based on our personal experiences, we'll provide insight and practical guidance on leveraging risk management as a benefit to our work, not a burden. We believe it's time to recognize that:

* Our professionalism as management accountants is based on using our core competencies.

* Good risk management is good management accounting, not compliance, because risk affects our jobs and the achievement of our organizational objectives.

* Risk management becomes virtually invisible when it's fully embedded in our core management accounting practices-it's implicit in everything we do.


Management accountants facilitate sound objective setting and decision making, analyze and communicate operating results, and evaluate and drive business performance. We work in all types of organizations-large, small, public, private, nonprofit, and governmental. And we have a variety of titles, including financial analyst, reporting specialist, manager, controller, director, and CFO. In short, we are business partners and strategic advisors who focus on creating stakeholder value.

Successful management accountants have access to a full toolbox of core competencies, leveraging our relevant expertise as needed for a given challenge or situation. We also play a critical role in collaborative decision making, execution, and accountability processes. We collect, analyze, interpret, and provide information for decision making. In doing so, we help internal and external stakeholders understand and influence drivers of performance-and what might happen in the future under alternative scenarios-to ensure that our organizations make the best decisions and achieve their objectives.

Let's take a look at management accountants' core competencies as defined in the Content Specification Overview of the CMA[R] (Certified Management Accountant) exam:

Investment Decisions. This competency encompasses cash-flow estimates; discounted cash-flow concepts; net present value; internal rate of return, discounted payback; payback; income tax implications for investment decisions; risk analysis; and real options.

Planning, Budgeting, and Forecasting. This competency includes the strategic planning process; budgeting concepts; annual profit plans and supporting schedules; types of budgets, including activity-based budgeting, project budgeting, and flexible budgeting; top-level planning and analysis; and forecasting, including quantitative methods such as regression and learning-curve analysis.

Decision Analysis. This competency involves relevant data concepts; cost-volume-profit analysis; marginal analysis; make vs. buy decisions; income tax implications for operational decision analysis; pricing methodologies, including market comparables, cost-based approaches, and value-based approaches.

Cost Management. …

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