Chief Risk Officer

A chief risk officer (CRO) analyzes the impact of potential risks associated with the business. In addition, they draft possible solutions to eliminate or reduce the impact of risks. Finally, CROs ensure that the firm complies with governmental regulations.

A Chief Risk Officer (CRO) is responsible for managing the overall risk profile of an organization. The CRO helps minimize potential risks, aligns risk management with business objectives, enhances reputation, improves decision-making, and ensures compliance with relevant regulations. The CRO's role is critical for the success and stability of a company.

• A chief risk officer (CRO) is a senior-level executive who identifies, analyzes, and mitigates risks. In addition, they formulate risk assessment reports.
• To become a CRO, aspirants must possess analytical skills, leadership, presentation skills, and knowledge of finance and compliance.
• CRO aspirants required a bachelor’s degree in finance or economics. In addition, they need a risk officer certification.
• Aspiring risk officers must possess analytical skills and problem-solving abilities. In addition, they must possess good presentation skills to guide the board of directors.

A chief risk officer analyzes internal and external risks that threaten a firm’s goodwill. In addition to risk management, a CRO is a juggler wearing multiple manager hats. The history of CRO dates back to the mid-1990s.

Risk management predicts and mitigates potential risks associated with a particular business. Risk officers develop and implement solutions to completely avoid or minimize the risk's negative impact.

Every company needs a risk management plan to deal with business risks (if and when they occur). The risk could be a security issue, financial loss, reduced productivity, labor crisis, inventory shortage, or a tarnished reputation. Investors must operate within the limits of their risk appetite.

Risk appetite is the amount and type of risk an organization is prepared to pursue or retain. Every business drafts a financial objective. But, due to uncertainties, multiple risks are associated with it. Risk officers conduct a cost-benefit analysis to determine if the particular endeavor is worth the risk.

In the United States, chief risk officer salaries range between around $15000 to $16000 a year (depending on the expertise). In addition, risk officers need a variety of business skills—extensive knowledge of finance and compliance.

The origin of this role dates back to the late 20th century. In 1993, financial services operator GE Capital appointed James Lam to manage credit, market, and liquidity risks. As a result, James coined the word "chief risk officer" for his business cards. GE Capital operates from Connecticut, United States.

However, within a few years, the dot-com bubble burst. This resulted in a debt crisis for the US. There were as many as 22 scandals during this time. The rising concern created a need for risk officers. Within a few years, most large corporations recruited an in-house risk officer.

By 2002, 45% of firms had a chief risk officer. Another 25% recruited risk professionals in consecutive years. But many smaller firms were reluctant to spend on full-time risk management employees. Then, in 2004, the United States proposed the "Sarbanes–Oxley Act." The law mandated all companies to comply with financial standards and rules.

The risks are classified into technical, competitive, regulatory, and technological issues. CROs work with senior management; they report directly to the chief executive officer (CEO) and the board of directors. In the United States, chief risk officers average between $15000 to $16000 every year.

Let us look at chief risk officer roles and responsibilities:

1. First, risk officers identify potential risks associated with the business.
2. They prepare documentation—in compliance with government regulations.
3. Finally, they develop risk-adjustment tools—and customize them per project requirements.
4. They provide an integrated framework to mitigate associated business threats. The framework comprises multiple policies associated with specific threats.
5. They perform risk analysis — formulate risk analysis reports—present them to the board of directors.
6. They specialize in SAS mining software to create customized solutions.
7. They equip stakeholders during audits and accounting procedures.
8. They prepare contingencies to mitigate potential breaches. They foresee potential damage and create an action plan to hedge the impact.
9. They perform liquidity analyses.

Let us look at the chief risk officer qualifications:

#1 - Earn A Bachelor's Degree

The aspirant needs to graduate from a renowned university to pursue a CRO role. In addition, they need a bachelor’s degree in finance, accounting, statistics, or economics.

#2 - Complete Certification Course

After earning a bachelor’s degree, aspirants must complete a risk officer certification—Certified Risk officer (CCRO), ISO 31000 Risk Manager courses,  Chartered Enterprise Risk Analyst (CERA), or similar alternatives.

#3 - Experience Level

Like any other segment, risk management also has a hierarchy. For example, for senior roles, recruiters expect the candidate to possess prior experience as a risk analyst.

A master's degree in business administration or finance can improve one’s chances. In addition, risk officers must possess analytical skills and problem-solving abilities.

Now, let us look at chief risk officer vs chief compliance officer comparisons to distinguish between the two.

This article has been a guide to what is Chief Risk Officer. We explain its roles, responsibilities, qualifications, and comparison with chief compliance officer. You can learn more about it from the following articles -

• Risk Management Certification
• Enterprise Risk Management
• Risk Profile