As institutions face budget pressures, regulatory shifts, and operational complexity, risk leaders are being called upon to inform strategy, quantify uncertainty, and help drive financial decisions. In this article, I offer a perspective on the skills required to lead the next generation of risk managers. These insights are shaped by my journey, which began in finance and shifted to risk management.
Risk Management’s Expanding Role in Strategy
As higher education institutions have strengthened their strategic visions over the last decade, risk professionals are being called into earlier stages of financial decision-making. One tool that gives risk managers this entryway is understanding the risk appetite statement (RAS).
The RAS articulates the level of risk an institution is willing to take to achieve its objectives. A well-structured RAS can serve as a decision-making tool for funding strategic projects by ensuring alignment with institutional mission and goals. A major component of the RAS is using financial quantification to establish Key Risk Indicators (KRIs) and educate the community on which risks to take by estimating their impact. This is where financial skills come into play.
Understanding finance terminology and its application provides a solid foundation in risk quantification. During my earlier years as a treasury professional, I prepared a dashboard of the institution’s cash forecast. Being able to quantify the cash position in a way that made sense to senior leadership helped me to not only understand their perspective but also guide recommendations. Quantification, visualization, making trade-offs, and defending one’s decisions are skills that can help risk managers get a seat at the leadership table.
Fast-forward to today, and it is essential for risk professionals to partner with treasury, budget, and finance to gain support and funding for risk initiatives. From navigating debt covenants that mandate insurance requirements to assessing the financial impacts of extended building losses, financial acumen is an essential tool for both current and future risk managers.
"...it is essential for risk professionals to partner with treasury, budget, and finance to gain support and funding for risk initiatives."
Core Financial Skills Every Risk Manager Can Build
Risk professionals don’t need to be financial experts to lead with numbers. However, they do need to understand the financial dynamics that drive institutional decision-making. Key capabilities include:
Cost of Insurance and Claims Trends: Risk professionals who understand the components of insurance costs, such as premiums and deductibles, are equipped to engage in conversations about program effectiveness and budget planning. Claims analysis must also transcend the basic frequency and severity metrics. Loss data can be leveraged as a strategic intelligence tool, identifying emerging trends, forecasting risk trajectories, and ensuring that mitigation strategies are performing as expected.
"Understanding and being able to communicate quantitative data that can influence, and shape institutional decisions is essential to being heard at the executive table."
Financial Statement Awareness and Budget Literacy: Increasingly, over the last decade, and now more critical as institutions face funding challenges, understanding and discussing budgets is essential. Combining this with financial statement awareness, you will have insights to engage in more meaningful conversations regarding risk treatment via insurance or other risk financing tools with leadership.
Self-Insurance, Retention Models, and Funding Strategies: Understanding which risk treatment option is most effective for your institution comes down to knowing how claims are funded and answering questions such as: What are the financial thresholds that need to be met before insurance applies? and What are the long-term impacts on the reserves or fund(s) balance(s)? Answering these questions demonstrates that your skills go beyond interpreting insurance policy coverage.
Translating Risk into Financial Impact: This skill stands out to me the most because of a unique feature of higher education: the scale of property ownership. Higher education institutions are some of the largest property owners in their respective communities, making the response of their commercial property insurance program highly critical to institutional resilience. Be ready to answer these questions:
How can you quantify the financial value of a building in a way that communicates the risk of loss of use and its impact on institutional operations and financials?
How will you communicate the risk of reputational damage associated with a significant building loss from a natural disaster?
How can newly required construction codes inform recommendations on budget and risk-adjusted values related to insurance premiums?
Being prepared with the quantitative examples will build credibility at the executive levels. The following skill-building exercises can pave the way.
Practical Ways to Build Financial Confidence
Learning through experience has been the most effective way for me to develop my financial skills and confidence over the years.
For example, read your institution’s financial statements. Financial statements reveal the organization’s risk tolerance, liquidity constraints, and priorities. Risk managers who can interpret cash flow statements can better understand when institutions can invest in preventive measures versus when they need to focus on other forms of cost-effective mitigation.
Another practical way is to attend meetings where financial and funding decisions are being made. If that’s not possible due to organizational structures, then ask questions to persons who have insight into institutional finance. Risk professionals can form partnerships with financial experts, such as treasury professionals and budget managers, on risk-related projects. These relationships can also include persons who manage capital planning in facilities.
Lastly, another way to enhance your financial acumen is to obtain certifications such as the Associate in Risk Management (ARM) or the Chartered Property Casualty Underwriter (CPCU).
Finance as a State of Mind
My years of experience in treasury taught me that finance is a state of mind that is partly based on understanding a broader context. Risk professionals don’t need to have all the answers, but they need to be curious and be open to learning new “languages” to communicate risk insights to gain trust and support from institutional partners.
"...finance is a state of mind that is partly based on understanding a broader context."
Understanding and being able to communicate quantitative data that can influence and shape institutional decisions is essential to being heard at the executive table. Further, higher education leaders are increasingly demanding data-driven decision-making amid unprecedented financial pressures. Like a bridge that connects two separate pieces of land, understanding finance is essential for the modern risk professional to advance.