Seize Control of Your Financial Risk Management in a Tech-Driven World with Data Analytics

November 30, 2023 Theresa Rex

financial risk management specialist analyzing data analytics on computer screen

Inflation, COVID-19, and AI are just a few of the many concerns that can lead to unexpected business scenarios. The ability to identify, evaluate, and mitigate these risks is crucial for an organization to navigate the uncertainties and challenges they face. In simple terms, it's all about data analytics in financial risk management. And today, we have the pleasure of diving into the topic with a special guest, Meg Johnson.

Meg is a Financial Services Regulatory Professional with over two decades of experience in bank regulation, risk management, operational strategies, and strategic planning. Currently, she serves as the CFO at Terra State Community College. Before that, Meg was the Executive VP and Deputy Chief Risk Officer at S&T Bank and the VP of Community and Regional Supervision at the Federal Reserve System.

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Megan - 00:00:18: Today, my guest is Dr. Meg Johnson. Meg is the CFO at Terra State Community College, bringing over two decades of experience in bank regulation, risk management, and strategic planning with significant leadership roles at both S&T Bank and the Federal Reserve. Meg, thank you very much for being my guest on today's episode of CFO Weekly.

Meg - 00:01:11: Hi, Megan. Thank you so much for the invitation. I'm really looking forward to our conversation this afternoon.

Megan - 00:01:15: Yeah, today we're going to be discussing the crucial topic of risk management. And in today's business environment, risks seem to be quickly evolving and they're coming from just about everywhere. I'm looking forward to learning from you. So let's get started.

Meg - 00:01:30: That sounds great.

Megan - 00:01:30: First, and as always, let's just start with a little bit about your career background and how it is that you got to where you are today.

Meg - 00:01:41: Sure. So I began my career back in 1996 with the Federal Reserve System. What started as a role as a banking supervisor and a bank examiner really evolved into a number of diverse leadership positions. Each role from supervising our state member banks and engaging in high-profile assignments in Washington to overseeing risk management at a bank has really added layers to my understanding of the financial sector as well as risk management practices. It's really been a blend of critical decision-making, strategic planning, and consistent learning, as well as a real passion for continuing my own professional development throughout my career and attending different certifications and professional courses. And now at Terra State Community College, I'm really leveraging decades of financial insights to support and guide our educational institution that helps shape the minds of our future.

Megan - 00:02:37: And maybe you just answered this, but what drew you towards your current position, which is CFO at Terra State Community College?

Meg - 00:02:46: So after my diverse roles in the financial world from working as a regulator as well as a publicly traded bank, I really felt a pull towards a position that really combined my expertise, with a broader purpose. Currently being a CFO here at Terra State Community College, it's not just about the numbers, it's about shaping a future and ensuring that our college stands on solid financial ground and making education accessible to the communities in which we serve here in the northwest Ohio area.

Megan - 00:03:16: And in your view, how have changes in the global economy impacted financial risk management strategies in, let's say, the last 10 years?

Meg - 00:03:26: In the last 10 years, especially during my recent tenure at the Federal Reserve, I've really observed global economic shifts that redefine the boundaries of financial risk. With the globalization in the economies and the rise of digital economies, risks are really no longer confined within geographical borders as they traditionally were. To manage them effectively really requires an approach that's dynamic, globally aware, yet really locally attuned.

Megan - 00:03:52: And from your experience, what are the most common mistakes that organizations make when trying to manage their financial risks?

Meg - 00:04:02: But one that really comes to mind from my vantage point is the compartmentalization of risks. At S&T Bank, we really emphasize the interconnectedness of all the risks, both from credit to operational to reputational, across all the regulatory risk stripes. Effective risk management in an organization really requires a cohesive enterprise strategy, as well as collaboration and a robust communication strategy.

Megan - 00:04:28: What would you say to a listener out there who's maybe thinking, this is never going to happen to me? I don't need to worry about this. I'm not going to prioritize it. What would you say to them?

Meg - 00:04:39: In terms of risk management?

Megan – 00:04:41: Yeah.

Meg – 00:04:42: Even if you think about it, any industry sector will benefit from having a strong risk management program. Traditionally, the financial sector is something that is aligned, whether it's from the regulatory perspective or it's a publicly traded firm, or maybe it's just a small accounting, public accounting firm on the corner. But having moved to higher education, it's very important to this interpretation. And I think it's important for the industry as well to really think about the what-ifs. A couple of years ago, I don't think anyone imagined that something like COVID would happen and the impact that it was going to have across the workforce. Specifically in higher education, while I was teaching as an adjunct, we were really not prepared for the effect that was going to have on our attendance rate, the effect it was going to have on our workforce, the effect it was going to have on our students. We had to really learn very quickly the strength of being agile and collaborative, as well as thinking very reactively and proactively about what our risk management strategy was going to be to address that. So, anyone who thinks that you know, this is never going to happen to me, I think recent lessons with COVID really can apply across all industries. But I also think it's a good practice just to think about the kind of scenario analyses that go along with the what-if scenarios. What if there's another financial crisis? What if our tuition, all students want to go online? What is the risk to our current business model? And how are we? And how are we going to address that from the locations that we are currently paying for? So good philosophy to have in any business model is to prepare for the what if so that you can be agile and have longer-term success.

Megan - 00:06:15: And how can organizations ensure they remain compliant with regulations related to financial risk management? And what are the challenges that compliance presents and how can these challenges be overcome?

Meg - 00:06:27: Having engaged both as a regulator as well as being on the other side of being regulated while working at a bank, I've really learned that compliance isn't just about adhering to the rules. It's really about cultivating a culture of integrity, having regular communication, training, and transparency are really the bedrocks of ensuring compliance within an organization. Challenges arise, but with a proactive stance and a culture of continuous learning and feedback, these challenges can be effectively navigated and ultimately enhance an institution's compliance program.

Megan - 00:07:04: And what strategies and resources should organizations utilize to better assess and manage the risk in their own financial operations?

Meg - 00:07:13: So I've seen all types of risk management activities across the spectrum, depending on the size of a particular organization, whether it be a small bank, a large bank, or even a community college like the one that I work in now. So risk management, I think, really is a combination of technology, processes, and human insights. And really, the depth of each of those really depends on the complexity of those organizations. So tools like various GRCs or governance risk and compliance models have been invaluable, but I think equally crucial is the human element. The thinking and the judgment that goes behind a strong risk management program. Having teams that can interpret data, understand nuances, and act decisively, but also leverage lessons that have been learned from the past to help influence and inform strategies for assessing risk into the future.

Megan - 00:08:08: And in your view, what role does data and analytics play in financial risk management?

Meg - 00:08:15: So during my time overseeing risk management functions, I've really seen firsthand how data and analytics transform decision-making both good and bad. I think it's important that there's one source of truth when it comes to data and you understand the importance of integrity of the data that you're using and performing the analytics that will then inform decision-making at all levels of an organization. Having this will provide greater clarity, offer better predictive insights, and really enable organizations to understand trends and patterns that exist within the particular industry in which they are working. This is crucially important in today's volatile world. Data-driven insights are not a luxury, but they're really a necessity for ground employees all the way up through boards of directors.

Megan - 00:09:04: You touched on the human component, but with the rapid evolution of technology, things like artificial intelligence and cybersecurity, how can CFOs ensure that they're able to deal with these new and increased threats?

Meg - 00:09:21: Yes. Technology is really an enabler of the work we do, but it also brings a lot of threats. Ensuring that systems are secure, that our employees are well-trained and knowledgeable, and that protocols are in place are paramount to organizations that are leveraging technology and their processes and procedures. CFOs, we really have a responsibility to anticipate and mitigate these threats, to safeguard both our institutions, our boards, and our stakeholders, as well as our customers, if we're a customer-based organization.

Megan - 00:09:55: And what advice would you give to organizations looking to create or maybe improve their risk management plans?

Meg - 00:10:03: The advice I would give to organizations that are looking to improve what they have with risk management if they're in a regulated industry, I would say strongly lean on your regulators. Try to find out what works well in similar industries for similar organizations of size and complexity, and don't be so focused on trying to reinvent the wheel. Same for organizations that are perhaps starting to take a zero-based approach to starting their risk management program. Lean on lessons, lean on other industry experts within the industry that they operate to try to understand what tools are available, whether it's training programs, what experts exist in that particular industry, what training certifications are available, and leverage the best of the best. Technology is also key, but one thing I would say is don't be so bent on making technology really lead what your program looks like or dictate what your program looks like. I think it's really important for organizations when they're improving or starting a risk management program to understand what's going to work best for the organization and not let technology drive what that process will be. So by working with stakeholders, other constituents, and other subject matter experts to really understand what is going to help best assess the risk within that organization? Technology can then come in on top and be an enabler for that, but not drive the particular process. And I think that's a pitfall I often have seen organizations fall into. I was buying something very shiny and expensive off the shelf and trying to implement it within their bank or their organization, but then not knowing what to do with it because they haven't thought about what are the processes that need to be in place to make it successful.

Megan - 00:11:52: And just going to throw this one out there, but what would your advice be for things like COVID for things that we could have never seen coming? I mean, how does it seem like there are so many of those types of things these days? How do you account for the unknown?

Meg - 00:12:08: Yeah, it's a great question. So I think having some weak signal monitoring place is really important. And it's often a step, I think, that gets overlooked by institutions or organizations because it's kind of like an afterthought. We're trying to get the baseline of the program and assessing risk and all of that. It's almost like process over substance a little bit. But having those conversations around, you know, what are the whispers that I'm hearing in the news? What am I hearing from my employees? What's keeping my board of directors up at night? And having those conversations around, okay, if this event were to happen, what are we going to do? And doing some action planning around what those threats might be. I think it helps with those unknowns that might happen. You're never going to predict the future, but I think there are a lot of things that institutions do in terms of scenario planning, contingency planning, having stress testing exercises that can build a resilient workforce to help deal with whatever, whether it's COVID, it's a crash in the market, it's another Black Friday. These things that we don't think we know are exactly going to happen, but they will prepare the organization to deal with it if they have the right policies in place, as well as practice and have had good conversations around what the what-ifs are around the table.

Megan - 00:13:27: That's great advice. Thank you for sharing. And last question, what's keeping you up at night?

Meg - 00:13:33: Oh, gosh. Moving into a new industry like higher education here at Terra State Community College really carries a lot of responsibility. And I find myself most really thinking about the future of education, especially in a community college where there is fierce competition among other higher education institutions. The financial challenges that lay ahead not only for the college as an institution but also for our students and how to best ensure that our students have every resource that they need given these challenges. So I think about how can we provide a best-in-class educational experience for our students, knowing what they need and making them the best contributors to the workforce, as well as understanding what the workforce needs and having that marriage. So it's kind of a perfect storm of making sure that we have the money to provide that our students can afford the education that we're providing and that we have the programming in place that they can take advantage of to leave and flourish out in the community in their careers. But, you know, beyond that, from a concern standpoint, I also have a lot of excitement and hope for the future that we're building here, not only at Terra State Community College but there are a lot of exciting things that are going on in higher education in terms of developing the workforce with technology grants. And other things that are going on with healthcare, in the technology world. There's just, that the possibilities are endless for individuals who may or may not know what they want to do with their futures in terms of a career when they enter the workforce, but there's a lot of opportunity. And I think that's really, really exciting to be in higher education at this point in time and be kind of at the ground helping to build that here at Terra State.

Megan - 00:15:19: I lied. It wasn't the last question. I'm just curious, what advice would you give to CFOs listening who are also considering switching industries? How do you get comfortable with something new like that?

Meg - 00:15:31: Another great question. So a couple of items, I would respond to that. The advice I would give to other CFOs who are looking to change industry is that a lot of the skills with risk management in particular are very transferable. The way you think about risk and risk management programs, while the terminology may change from industry to industry, the skills are very transferable. But also, I think the other thing I should have mentioned first is that leading teams and developing and nurturing teams to be successful, those skills look the same regardless of what industry you are working in. And so walking into a different industry as a CFO here at Terra State, I've been able to bring what I know about risk management and what I know about leading people and rallying around a common cause to help us be successful in terms of understanding what our financial landscape looks like, addressing the challenges that we have here that are specific to Terra, maybe specific to higher education, but also knowing how to be resourceful to go and ask the questions that I don't necessarily know the answers to. So there's a lot that I didn't know coming to higher education in terms of the specifics of financing for educational programs, what that looks like, state subsidies, financial grants. There's a lot, but that's the part of my job that I love. The fact that I can bring this great experience from my past into a higher educational institution and learn at the same time. It really drives my passion for learning. And I think because of that and where I sit, it builds the excitement that I talked about earlier for my role. And I think will continue to drive me to look for ways for us to be successful in the future.

Megan - 00:17:13: Great answer. Meg, thank you so much for being my guest today.

Meg - 00:17:16: Absolutely. Thank you so much, Megan. This was great. I could talk about this all day long.

Megan - 00:17:20: Yeah, I can tell that you're passionate about it. And I really enjoyed speaking with you. And again, thank you for finding the time to be here with us today to share your experience and knowledge.

Meg - 00:17:30: Anytime. It was great. Thank you.

Megan - 00:17:32: Yeah. To all of our listeners, please tune in next week. And until then, take care.

In this episode, we discuss:

  • Strategies for effective financial risk management

  • How to cultivate a culture of integrity in financial risk management

  • The role data, analytics, and technology in financial risk management

Key Takeaways:

The Evolution of Financial Risk Management

In managing financial risks, it's vital to understand the impact of global economic shifts over the past decade which have extended the range of financial risk. Effective management requires a strategy that acknowledges the link of various risks and focuses on collaboration and strong communication. Moreover, recent challenges like the COVID-19 pandemic highlight the importance of being agile and proactive in planning, with businesses regularly engaging in "what if" scenario analysis to ensure resilience and long-term success.

the evolution of data analytics in financial risk management Quote

“With the globalization in the economies and the rise of digital economies, risks are no longer confined within geographical borders as they traditionally were. To manage them effectively requires an approach that's dynamic, globally aware, yet really locally attuned.” Johnson said. - 03:16 - 06:15

Nurturing a Culture of Integrity

Effective compliance is more than simply adhering to rules; it involves cultivating a culture of integrity within your business through regular communication, training, and transparency. A successful approach to risk management combines processes, technology, and human insights personalized to the organization's size and complexity. Besides, tools like governance and compliance must be complemented by the human ability to interpret data and apply informed judgment.

Meg Johnson, CFO at Terra State Community College - Quote

“I've learned that compliance isn't just about adhering to the rules. It's really about cultivating a culture of integrity. Having regular communication, training, and transparency are the bedrock of ensuring compliance within an organization.” Johnson said. - 06:15 - 08:08

The Role of Data Analytics and Technology in Financial Risk Management

Due to their transformative impact on decision-making, data and analytics play an essential role in financial risk management. As a result, it's key to have a reliable data source to maintain integrity at every business level. Also, tackling technology challenges, like AI and cybersecurity, requires robust security measures, employee training, and effective protocols. As CFOs navigate this landscape, their responsibility extends to proactively addressing these threats to protect their businesses, stakeholders, and customers.

role of data analytics and technology in financial risk management Quote

“Data-driven insights are not a luxury, but they're a necessity for ground employees all the way up through boards of directors.” Johnson said. - 08:08 - 09:55

Leveraging Industry Wisdom

If you're looking to improve or establish effective risk management plans, leverage insights and best practices from regulators and similar entities in your industry to avoid reinventing the wheel. While technology plays a vital role, it should not dictate the structure of your risk management program. Instead, focus on what works best for your organization and let technology serve as an enabler.

Leveraging data analytics industry wisdom Quote

“Lean on lessons, lean on other industry experts within the industry that they operate to try to understand what tools are available, whether it's training programs, what experts exist in that particular industry, what training certifications are available, and leverage the best of the best.” Johnson said. - 09:55 - 11:52

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