What is the primary objective of the risk management function in a firm?

The primary objective of the risk management function in a firm is to balance risk against other objectives. This entails evaluating the potential risks that the firm faces and understanding how these risks can impact various business objectives, such as profitability, growth, and stability.

Risk management does not merely focus on minimizing risk or ensuring the firm’s viability, as elements of risk are inherent in many strategic decisions. Instead, effective risk management involves identifying, assessing, and prioritizing risks while making informed decisions that align with the firm's overall goals. It is about finding an optimal level of risk that is acceptable to the firm while still enabling it to pursue its objectives, which may include maximizing returns according to its risk appetite.

Moreover, while developing new investment strategies may be a part of a firm's growth efforts, risk management specifically is concerned with how these strategies align with the firm's risk profile and overall objectives, rather than solely creating new opportunities. Therefore, balancing risk with other strategic objectives is the cornerstone of effective risk management, ensuring that the firm is not only guarding against potential downsides but also positioned to take prudent risks that can foster growth and innovation.