What is a Chief Risk Officer (CRO) & Why Does Your Organization Need One?

All organizations have a team of C-suite executives to set strategy and run the business. Typically that group looks quite similar from one organization to the next, with the chief executive officer, chief technology officer, and chief financial officer among the most important.

But do you also have a chief risk officer? Do you even need a “CRO”? What are the CRO’s responsibilities, anyway; and what is his or her role in enterprise risk management (ERM)?

This article will explore the scope of a chief risk officer’s duties, and how to determine whether your organization needs one on the executive team.

Why Risk Management is So Important

Modern-day organizations operate in a risky landscape. Any number of risks might jeopardize operations today or tomorrow. These risks could result in catastrophic damages and losses that could threaten the firm’s business continuity, competitiveness, and even existence.

To protect the organization, it’s crucial to identify and mitigate risks before they can cause damage. For this, an ERM program is vital. But such a program will not run by itself. A strong leader is required to implement the program, guide its long-term strategy, and give direction to day-to-day operations. This leader is the chief risk officer.

The CRO is a top-level executive in charge of identifying, analyzing, mitigating, and controlling risks that could damage the company. Many times the CRO is also tasked with assuring that the organization complies with government regulations such as Sarbanes-Oxley (SOX) or HIPAA, as well as internal standards and best practices.

The CRO’s role and responsibilities depend on the organization’s size, industry, risk landscape, and regulatory compliance commitments. That said, there are common traits for the CRO role across all organizations.

What Does a CRO Do

A chief risk officer (also sometimes known as a chief risk management officer) has two primary mandates: manage risk and manage compliance. The CRO is not necessarily expected to get involved in the detailed operation of these functions, but he or she is expected to oversee risk management and compliance and optimize the performance of those functions.

The CRO plays a key role in developing internal controls to minimize internal and external risk. As the most senior member of the organization’s risk management function, the CRO guides other risk personnel so they can effectively identify, analyze, and address the potential risks to the company.

The CRO also governs information security, cybersecurity, and compliance processes. He or she implements and monitors procedures to protect the company against fraud, safeguard its intellectual property, and reduce its risk exposure.

Often, CROs work with the risk team to track factors that may adversely impact the organization’s performance, financial stability, profitability, or compliance posture. In some companies, CROs also oversee internal audits to identify threats before those things result in adverse events such as cyberattacks, regulatory fines, or legal action.

CRO Roles and Responsibilities: Risk Management

Most organizations face many types of risks, such as:

• Operational risk
• Strategic risk
• Financial and credit risk
• Geopolitical risk
• Economic risk
• Environmental risk
• Competitive risk
• Regulatory and compliance risk

The CRO’s job is to look out for whichever of these risks that might affect the organization. He or she must work with their team to identify which of these risks are relevant to the company and its business units.

CROs must also implement procedures and workflows to assess, analyze, and prioritize these risks based on the risks’ likelihood of occurrence and potential impact. The company may also designate the CRO as the senior executive in charge of conducting risk assurance and due diligence before a merger, acquisition, or business deal.

The CRO must lead efforts to set and measure risk appetite and determine how much risk the organization is willing and able to tolerate. Further, once a risk has been identified, analyzed, and prioritized, it must be addressed using the right risk mitigation strategy: accept, avoid, transfer, or reduce the risk.

As part of the risk management team, the CRO sets the mitigation strategy for all identified risks and prepares a plan to manage them. The CRO also implements and supervises the day-to-day operational framework (policies, procedures, best practices) for risk identification and mitigation.

As part of their risk management obligations, CROs must regularly audit procedural issues that could increase the company’s threat exposure to any kind of risk. For example, if the company collects, handles, or stores sensitive data such as personally identifiable information (PII) or personal health information (PHI), the company and CRO must secure this data and protect its confidentiality, integrity, and availability.

The CRO must implement controls to prevent security lapses that may result in a cyber attack or data breach. If such a lapse does occur, the CRO must address the issue while minimizing losses. Equally important, he or she must implement measures to plug weaknesses and assure that the lapse doesn’t happen again.

Some other risk-related responsibilities that are part of the CRO job description include:

• Perform risk assessments (such as cybersecurity risk assessments), develop risk heat maps, and develop action plans to manage and mitigate risks
• Update existing policies and procedures to address new vulnerabilities and emerging risks
• Guide disaster recovery and business continuity planning efforts
• Create and disseminate risk analysis reports to different stakeholders, including board members and the C-Suite management team
• Establish a strong risk culture and a common “risk language” across the enterprise
• Incorporate risk management plans and priorities into the organization’s strategic vision and objectives
• Implement and manage the risk oversight function
• Develop budgets and plan resources for risk-related projects
• Guide enterprise-level decision-making based on the organization’s risk appetite and risk posture

CRO Roles and Responsibilities: Compliance Management

In addition to risk management and control, compliance management is also the CRO’s responsibility. Depending on its industry and other factors, the organization may have to comply with certain regulatory or legal requirements. These requirements could be at the international, federal, state, and local levels.

A CRO must identify and mitigate the company’s compliance risk – that is, the probability that the company might not meet its responsibilities under applicable laws and regulations. To mitigate this risk, the CRO must manage and optimize the organization’s compliance program, to assure consistent compliance with all regulatory requirements. Here’s where the CRO’s contributions are invaluable.

For example, healthcare organizations that collect and process health information must comply with the Health Insurance Portability and Accountability Act (HIPAA). Non-compliance can result in costly fines and even jail terms. The CRO assures that the organization has implemented the necessary procedures and controls to ensure continual compliance with HIPAA requirements.

Similarly, organizations that collect or process the personal information of European Union (EU) residents must comply with the data privacy requirements of the General Data Protection Regulation (GDPR). Like HIPAA, GDPR non-compliance can result in painful regulatory penalties and unwanted headlines in the news. It is the CRO’s responsibility to assure that these consequences don’t come to pass.

Why the CRO Position Is Vital

Every organization in every industry faces various threats and risks that could negatively impact its operations, financial stability, compliance posture, employees, and stakeholders. Some risks could even threaten the company’s existence.

The CRO implements and manages the risk management initiative to prevent, or at least mitigate, these risks. He or she does not manage all the risks directly; for example, the CRO is not responsible for the financial risks associated with a bank’s investment strategies. Rather, the CRO is responsible for assuring that a program exists for the bank to analyze its financial risks, and that bankers follow it to keep financial risks at a minimum.

Put more simply: executives in the operating business units still “own the risk,” while the CRO gives them the tools and procedures to manage those risks smartly.

A successful risk manager typically has a postgraduate or master’s degree, usually in business administration. He or she also brings years of experience, analytical skills, communication skills, and decision-making ability.

The CRO should also have a deep understanding of the business and its risk landscape. The combination of crucial skills and capabilities allows the CRO to identify, assess, and mitigate external and internal risks to the organization.

As risks evolve and become more complicated, every company needs a competent CRO for strategic planning and to set the long-term direction of its ERM program. They also need the CRO to implement and monitor the program’s short-term tactical implementation.

CROs also secure the resources, funds, and tools required to execute the company’s risk management and compliance management mission. They play a crucial role in guiding the firm’s risk communication workflows. They also drive org-wide commitment to risk mitigation and help promote proper risk-averse behaviors at every level of the enterprise.

Improve Risk Management with Reciprocity ZenRisk

Competent and experienced chief risk officers require the right risk management tools. An automated platform such as ZenRisk enables CROs to optimize their risk management framework. They also get greater visibility into the risk landscape to better manage risks and protect the organization from adverse consequences.

ZenRisk provides a holistic view of organizational risk and “operationalizes” enterprise risk management. From one centralized application, CROs and their teams get the advantage of risk heatmaps and dashboards to address many kinds of threats, vulnerabilities, and incidents.

They can even evaluate risks across systems and business divisions using customizable risk calculations, multivariable scoring, and standardized frameworks from SCF and NIST.

Schedule a demo to learn how ZenRisk can help your organization set up a successful risk program.