A Finance manager is an essential part of a company’s future. Even though their role isn’t as evident as business managers, they are responsible for assessing various business operations that involve performing risk assessments of a business plan.
But, before we define the role of a finance manager in risk assessment, let’s start with the basics.
Who is a finance manager?
Financial management is the process of managing money in a company. On the other hand, a dedicated finance department handles all finance-related issues, procedures, and decisions.
Finance managers are responsible for running a finance department efficiently and for many financial and operational tasks critical for running the company.
A finance manager also participates in budget planning, predicting future financial trends, risk assessment, developing business plans, and more. For landing the finance manager position, candidates must have extensive professional experience and a solid academic background.
Following are a few essential skills needed in a competent finance manager:
- Negotiation and communication skills
- Technical and accounting knowledge
- Attention to detail
- Strong decision-making and analytical skills
- Critical thinking
- Proficient with current financial software
What is risk assessment/management?
Risk management or assessment involves identifying, analyzing, and responding to risk factors and managing them proactively to maximize opportunities. It consists of mitigating or accepting uncertainty in investment decisions and is a critical business practice to minimize the negative impact of various factors on an organization.
A finance manager plays a crucial role in monitoring and managing potential financial risks a company may face. The finance manager career path entails working closely with top executives to understand a company’s financial needs and protect its interest from economic uncertainty.
The career path also encompasses risk management, as an inseparable part of any firm’s finances that helps experts like finance managers deal with the deviation from an expected outcome, whether positive or negative.
Why do businesses hire finance managers?
- Assessment and analysis:
Assessment and analysis are the initial steps of the risk management process and one of the finance manager’s most important duties. Identifying, analyzing, and assessing financial risks and their impact on the organization helps develop contingencies.
It also involves evaluating how exposure to uncertain events may impact an organization’s day-to-day operations. Finance managers play a critical part in protecting an organization’s reputation and optimizing revenues by estimating financial scenarios.
- Risk evaluation and budgeting:
Evaluation and budgeting are two of three basic steps of the risk management process that allow finance managers to estimate risks against specific criteria organizations establish.
Based on the company’s risk management policies, a finance manager evaluates the magnitude and intensity of risks for easing the impact they create on the company’s various departments.
In addition, finance managers also handle and analyze budgets, environmental regulations, insurance, legal requirements, system malfunctions, socio-economic factors, and more.
- Hedging the risk:
Finance managers use hedging as one of the strategies to deal with risk, which is simply a form of transaction that minimizes exposure to unwanted financial and business risks. These risks mainly arise from commodity prices, fluctuation in exchange and interest rates, and so on.
Finance managers define and develop a hedge for keeping the company in a risk-free position while eliminating the prospects of future gains or losses. Their risk management strategy also involves buying or selling assets to neutralize all or at least some portion of the risk.
- Maximizing the profits:
The job of a finance manager is challenging and requires attention in various finance and business departments. However, beneath all the planning and assessment, the main goal of financial managers is to maximize the organization’s value and aim for the highest profits.
For this purpose, a finance manager works on both the long and short-term consequences of the organization’s actions related to finances and other crucial business decisions.
They overlook several aspects such as record maintenance and risk reporting regarding the nature, depth, and probable consequences of risks on their company’s profits and develop proposals that forecast the impact of risks on company revenue.
- Risk treatment and contingency plans:
Based on risk evaluation and assessment, a finance manager moves on to assist in designing risk treatment, response, and efficient contingency plans by implementing the procedures and policies developed to minimize the effects of potential risks.
They put together contingency plans to tackle both external and internal risks and prepare business continuity plans that focus on the crucial risk management steps.
A finance manager aids businesses in the risk treatment process, from designing the process to executing strategies.
Risk management is an ongoing process that requires a sharp mind to address and implement related strategies for the company’s best interest. Such vigilant minds belong to professionals like finance managers who play a vital role in identifying, assessing, and containing the positive and negative effects of uncertain financial scenarios in an organization.
Finance managers are essential for implementing and completing the risk management process because they can perform multiple roles for controlling financial risks while carefully limiting the probability of financial losses for a company.