There is an overlap between the financial planning and analysis (FP&A) and the risk management teams as both are focused on ensuring an organization is on track to achieve its business objectives. This shared objective presents a common ground for discussing risk.
To explain, the FP&A team focuses on how to achieve goals and create forecasts that show whether the organization is on track or need to adjust course. Their colleagues in risk management look at what can stop the FP&A team from achieving their goals. Even though it appears that both the teams have divergent goals, they are working towards the same goal, i.e., ensuring that the organization is on track to achieve its business objectives.
The FP&A team can use the shared goal to further the objectives of the organization. To begin they should learn the risk taxonomy of an organization because the team can tap into this taxonomy and associated analysis to help talk about organizational risk. How does learning about the risk taxonomy help FP&A professionals?
First, the FP&A team can benefit from the risk methodology by obtaining a sense of potential exposure and impacts on the income statement or charges against reserves. Subsequently, they can apply the risk taxonomy in presenting a risks-and-opportunities or SWOT analysis (Strengths, Weaknesses, Opportunities, Threats).
A second reason for the FP&A team to learn taxonomy is that speaking the language of risk means understanding the control structures, especially the cost efficiency of those controls. At some point, the cost of controls might outweigh the benefits and stifle growth. The FP&A team can add value to the risk team by studying the cost-benefit trade-off that comes with layers of controls as part of its existing mandate to staying on top of internal expenses.
The third reason to learn risk taxonomy is that risk management processes are evolving and moving closer to the business partners of an organization. The trend today is to transfer the ownership of risk to the business partners and support them with training and oversight by a dedicated risk group. This evolution means the business partners are going to be speaking the language of risk (i.e. risk taxonomy) and hence it becomes essential that the FP&A team also advance itself to speak the language of risk.
Understanding the taxonomy of risk provides an entry point for the FP&A team to talk to other parts of the enterprise and overall operations. This interaction can lead to expanded collaboration and professional opportunities that can make everyone better.
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