AI Integration: A Strategic Asset for Chief Risk Officers

Diligent’s Brian Stafford offers insights on AI integration and why it is a strategic asset for chief risk officers. This article originally appeared on Solutions Review’s Insight Jam, an enterprise IT community enabling the human conversation on AI.

Today’s businesses face an increasingly complex risk landscape due to fluctuating market conditions, regulatory and compliance requirements, geopolitical risks, high federal interest rates, the list goes on. Not to mention, an intense era of digital transformation across all industries and businesses also gives way to new challenges. To reflect the pace of technological innovation and meet customer and shareholder expectations, some companies have expanded their C-suite, adding positions like the Chief Data Officer, Chief AI Officer, and Chief Risk Officer (CRO) to better mitigate risk and increase growth and productivity.

Specifically, Chief Risk Officers and corporate risk leaders are tasked with developing a strategy to unlock opportunities, drive value and safeguard their company’s future growth and reputation. PwC predicts innovation in AI technologies is slated to generate $15.7 trillion by 2030, so CROs must seriously consider the impact of AI and work closely with their AI counterpart to leverage its benefits.

Reimagining Risk Management

A robust risk management function has proven vital to an organization’s health and future, especially as companies adapt to the ever-changing business environment and intensified regulatory landscape. Effective risk management requires a deep understanding of all aspects of risk: financial, operational, governmental, strategic, and compliance.

Risk management has evolved greatly from the days of purely judgment-based decisions. Today, most businesses can identify risks using data and analytic frameworks to consider the big-picture implications on their operations. In fact, artificial intelligence (AI) is emerging as a powerful risk tool. It enables a more efficient and insightful approach to risk assessment. AI’s ability to provide and analyze large amounts of data, identify patterns, and provide actionable insights makes it a useful partner-in-risk to the CRO, supporting their evaluations and suggestions with highly valuable data.  Especially in Enterprise Risk Management (ERM), this kind of support can expedite decision-making and help increase trust among decision-makers.

ERM is centered around gaining a holistic and “big picture” view of risk, allowing organizations to better achieve objectives by managing the combined impact of those risks. Companies are intensifying their focus on ERM, as seen in a KPMG survey where 88 percent of organizations said they will increase their risk management budgets over the next year. In the same survey, CROs cited AI as the most vital digital tool to accelerate risk management processes in the next five years, followed by cloud and cyber solutions. Although a well-equipped CRO can be challenging to find, this does not mean organizations can replace the position with AI entirely.

It is imperative that AI is utilized with proper human oversight. This ensures that AI solutions provide accurate output and align with today’s ethical standards. While AI can handle large amounts of data itself, it lacks the ability to fully grasp important considerations like context. Human oversight supports the mitigation of bias and hallucinations, ensuring that AI solutions are effective and ethically sound.

AI as a Partner to the CRO

Traditional risk assessments often involve time-consuming and biased manual processes. AI automates these processes, allowing quicker and less subjective data collection, analysis, and reporting. By integrating AI with a connected GRC platform, organizations will be given a holistic view of risk which also promotes better cross-department coordination.

AI is poised to revolutionize risk processes by providing the necessary data and pattern recognition, which lies at the core of risk management. This gives CROs and risk professionals the proper insights to lead and advise their companies and support efforts in areas they are not as familiar with. According to a Moody’s survey, early adopters of AI solutions for risk identified benefits in five key areas: efficiency gains, enhanced risk identification, tighter fraud detection, cost saving and error reduction, and data processing.

 For example, AI standardizes risk terminology and messaging, ensuring a consistent understanding and communication of prospective threats throughout the organization. AI-enhanced surveys go beyond simple checkbox responses by analyzing open-ended responses and identifying custom risk factors, and AI-powered interviews use plain language to extract insights from the data. AI’s ability to process large amounts of data allows CROs to detect clear risk patterns, and outliers critical to identifying potential risks. Employing generative AI in tasks like underwriting, fraud detection, customer interactions, and regulatory compliance helps risk teams streamline these operations and improve accuracy.

Board reporting also benefits and becomes more organized and accurate through AI-provided data and insights. Leaders and boards can then understand and digest risk data, increasing trust and confidence in the strategy they’ve set for the organization.

Outside of just the risk-focused world, we have seen most companies beginning to implement AI into various internal and external processes. According to a survey conducted by UKG, nearly eight in 10 executives surveyed (78 percent) said their organization is using AI right now in some capacity. Over half (56 percent) of executives surveyed estimate that their workers use AI directly to automate tasks or augment their position’s capabilities. This demonstrates that those not adding AI into their risk management processes are already behind more than half of their peers.

AI is not perfect. It comes with its own challenges: data and privacy concerns, bias, hallucinations, and a lack of human feeling necessary for important business functions. CROs need to be present to address these risks and insights of using AI. This further supports the idea that AI is a well-suited partner for the CRO rather than a replacement. For executives and leaders to own their side of the partnership, they should first become AI certified to learn more about the intersection of AI and ethics to help steer their organization toward more sustainable, trustworthy practices. CROs must also take the necessary steps to educate themselves and their organizations on the benefits of AI implementation.

While the role of the CRO remains crucial, AI augments its capabilities, making risk management even more accessible to a broader range of companies. This synergy between human expertise and AI-driven insights will be a game changer in the evolving corporate risk management landscape.