What every CEO needs to know about AI. Part three: risk

Managing risk is crucial in both protecting business value and improving risk-adjusted returns. Unsurprisingly, banks have made the greatest strides in using AI to manage risk.

Traditionally, risk departments have focused on eliminating undesirable operational risks. In the world of AI, risk departments have the potential to create much more value by partnering with other departments. Working with marketing departments, they can expand the universe of potential clients and offer dynamic risk-adjusted personalised pricing. Working with finance departments, they can reduce bad debt by generating early warnings about customers likely to get into financial difficulty. And working with behavioural scientists, they can devise customised collection strategies.

Seeing around the corner

No CFO wants to miss a profit target. Machine learning can track trends, generate increasingly accurate forecasts and spotlight early warning signs of problems that can then be acted upon. AI can:

• Monitor trends in economic growth, commodity prices, inflation, foreign exchange rates, demographics, regulation, geopolitical events and technology.
• Help forecast how such moves will affect a company’s competitive position, its input costs, customer demand and the health of distribution channels; and
• Predict how the company’s performance will be impacted.