How to Become a Risk Manager:
A Complete Career Guide
One of the most important aspects of running a successful business is identifying, quantifying, and managing the various risks for which the company may have exposure. Failing to recognize and plan for risk can bring an end to an enterprise. For companies that deal primarily with data and information, the corporate risk profile (threats to which a company is exposed) is closely linked to cybersecurity and data protection. Risks are often related to safety and security for companies that deal mostly with physical goods and services.
Regardless of business type, there are four categories of risks that all companies must address.
These, along with some of their subcategories, include:
Market Risk
Interest and currency exchange rates
The fluctuating cost of materials
Changing trade laws
Compliance Regulations
Credit Risk
Customer defaults
Vendor relationships
Operational risk
Fraud
Employment and Business practices
Continuity processes
Employee safety and security
Property and data protection
Reputational Risk
Brand perception
Data breach or exposure
What is a Risk Manager?
A corporate risk manager is involved in many aspects of the business. The risk manager position should always be an executive role in the organization. In some companies, risk management is elevated to the C Suite with the chief risk officer (CRO) role. Where the risk manager falls within the enterprise’s hierarchy is often an indication of the organization’s risk appetite or willingness to assume certain risks.
In simple terms, the role of a risk manager is to understand everything that could go wrong and what the consequences or impact on the business would be if it did go wrong. The “what could go wrong” scenarios are the threats. The “consequences or impact” of a threat is referred to as criticality.
In addition to understanding the criticality of the various threats faced by the organization, the risk manager must also understand the probability of a given threat happening to the company.
The basic formula applied by managers is Risk = Threat x Probability x Criticality. This formula can also be expressed as Risk = Threat x Vulnerability x Consequence.
To be effective, risk managers must monitor both external and internal influences that could affect their business.
Risk Manager Requirements, Skills, and Experience
While risk management careers span across all industries and organizational types, there are some skillsets and experiences that will help all risk managers be successful in their job. These include:
Ability to objectively analyze data and information to form a big-picture view of risk
Ability to digest detailed information to determine trends and tendencies
In-depth knowledge of their industry, including competitors and adversaries
Ability to communicate effectively at an executive level
Ability to be agile and react to changes in the business environment
Organizational and leadership skills
What do Risk Managers do?
In addition to understanding the organization’s risk, a risk manager defines the companies risk appetite. This is done by developing strategies to minimize, eliminate, or transfer the risk. Some risks are minimal, either because the consequences are small or the probability of the event is low. Those risks may just be assumed by the company, or in other words, they just take the risk. Other risks, however, must be eliminated or transferred in the form of insurance.
Threats and risk factors are quantified and communicated by the use of a risk assessment. A risk assessment is a tool used by risk management professionals to examine known risk factors and benchmark them against known probable consequences. A risk assessment is used to formulate appropriate ways to eliminate or minimize risk.
Considering threats from weather and natural disasters to civil unrest and potential competitor mergers and acquisitions, risk managers must be ready to council company leadership on a possible course of action.
In well-staffed organizations, the risk manager may be able to rely on input from peers and subordinates, such as:
Cyber risk specialists
Security director
Chief information officer
Threat intelligence specialists
Chief resilience officer (commonly found in municipalities)
The risk manager’s job is to evaluate input from all available sources and then quantify risks for senior decision-makers in the company. They often assist senior management in defining business strategies that avoid or mitigate risks.
Risk Manager Job Description
The role of the risk manager is to develop and communicate risk policies for an organization. They develop risk models for each risk category; market, credit, operational, and reputation. They apply the risk formula (Risk = Threat x Probability x Criticality) to determine appropriate risk acceptance, reduction, elimination, or transference strategies.
Typical duties include:
Designing and executing a risk management process
Perform or oversee risk assessments to cover all business risks
Define the organization’s risk appetite
Prepare and balance risk management and insurance budgets
Define risk reporting procedures
Communicate risk policies to stakeholders
Create or approve business continuity plans
Oversee company health and safety plans
Conduct or oversee compliance audits
Review significant contracts and proposals
A recent job description posted on a popular employment website reads as follows.
“[The company] seeks an experienced Risk Manager to join their team in New York.
In this highly visible role, the successful candidate will be responsible for monitoring and managing equity portfolio risk, scenario analysis, multi-factor modeling, and tail-risk analysis. The Risk Manager will regularly interact with portfolio managers and senior management on all equity risk-related matters.
The successful candidate will have an advanced degree in a quantitative discipline with a minimum of 5+ years of risk and/or quantitative analysis experience gained at a leading asset manager. Extensive factor modeling experience is a key requirement. Deep knowledge of fundamental equities trading strategies is key. Programming ability in Python or R strongly preferred. Clear, deliberate, and thoughtful communication skills are critical as regular interaction with the desk and senior management is an integral part of this role.”
A risk manager job description for another industry would read quite differently. Some interesting similarities are likely to be consistent, however. Note that “deep knowledge and fundamentals” of the hiring firm’s business is expected. This requirement should be expected regardless of the industry. Also, note that communication skills and the ability to interact with senior management are required.
Certificates or Special Training Required for Risk Managers
Since an intimate knowledge of specific business nuances is desirable, the training and educational requirements for the role of risk manager will vary widely depending on industry and organizational type. There are certain certifications and training that will be valued across these industry and organizational variations. These include:
A bachelors degree in business administration or management should be considered a minimum requirement
A Master is preferred - check out this great one from the University of Toronto
A law degree
A degree in finance or economics
Several years of previous experience in risk management
If working in the financial services industry, a Financial Risk Manager (FRM) is desirable
Outlook for Risk Managers
The overall outlook for the risk manager is excellent. Risk management as a profession is just coming into itself. For many years many organizations addressed risk in a segmented way. Each office, branch, division, or plant manager was responsible for managing their local risks. Only over the last two decades have companies embraced the idea that an executive with company-wide authority and responsibility is needed.
Two years ago, Recruiter.com said, “The overall job outlook for risk management specialist careers has been positive since 2004. Vacancies for this career have increased by 29.04 percent nationwide in that time, with an average growth of 4.84 percent per year. Demand for Risk Management Specialists is expected to increase, with an expected 11,760 new jobs filled by 2018. This represents an annual increase of 0.95 percent over the next few years.”
How Much do Risk Managers make?
According to salary.com, “The average risk manager salary in the United States is $111,765 as of May 28, 2020, but the range typically falls between $96,890 and $127,934. Salary ranges can vary widely depending on many important factors, including education, certifications, additional skills, the number of years you have spent in your profession.”
The Bureau of Labor Statistics combines risk managers with other categories of financial managers, and salaries of risk management employees depend on the field or business in which they’re employed.
Median annual salary: $127,990
Top 10 percent annual salary: More than $208,000
Bottom 10 percent annual salary: Less than $67,620
It should be noted that compensation packages for risk managers frequently outperform financial managers’ averages in general. Those employed in this profession may earn bonuses and commissions in addition to salaries and may even receive profit sharing.
Payscale.com lists the average risk manager salary at $86,840, but the location will invariably make a significant difference in overall compensation.