Probability & Partners: The age of AI in risk management

24 september 2024

By Kevin Rojer, Service Line Lead AI in Risk Management at Probability & Partners

The financial services industry stands on the verge of a profound transformation, driven by the rapid evolution of artificial intelligence (AI). Once seen as futuristic, AI is now becoming a cornerstone for businesses that want to enhance their decision-making processes, improve operational efficiency, and remain competitive.

AI’s ability to automate tasks, analyze vast datasets, and even detect unseen patterns is reshaping how financial professionals and risk managers operate daily. However, with AI’s rapid rise comes a critical need for organizations to adopt a clear strategy and roadmap for its implementation, or risk falling behind.

Identifying opportunities: the low-hanging fruit of AI

AI excels at automating routine, time-consuming tasks – those small, mundane processes that often take up valuable time. While many see AI as a tool for complex tasks, its true strength lies in tackling these everyday challenges. Just as a car mechanic doesn’t need to tear apart an engine to notice a squeaky belt, leaders can spot operational inefficiencies that AI could help address. It’s about identifying opportunities where automation can free up time and resources for more strategic work.

In financial services, AI can be applied to automate document review workflows, such as reviewing contracts or invoices, enhance the accuracy of regulatory reporting, and streamline client onboarding procedures. It can also help by automating transaction monitoring, identifying suspicious activities in real-time, and optimizing customer service by using AI-driven chatbots to handle routine inquiries, freeing up staff for more complex client needs. Identifying and automating these ‘low-hanging fruit’ tasks saves time and reduces errors, allowing organizations to reallocate resources to more strategic activities.

Educating your workforce on AI

While leaders are often eager to invest in AI tools or hire experts, many miss a critical opportunity: educating their broader workforce about AI. For organizations to get the most out of AI, every team member should understand how the technology works and its potential applications in their daily tasks. Employees don't need to become AI experts, but they should be aware of what AI is capable of and where its limitations lie.

With the rise of new AI techniques like Large Language Models (LLMs), companies should also focus on educating employees on prompt engineering – the art of effectively interacting with these AI systems. Encouraging team members to take prompting courses will empower them to work more efficiently with these AI tools. LLMs are particularly good at saving time by automating routine tasks, allowing employees to focus on higher-level work where human skills, like critical thinking and problem-solving, are essential.

When employees better understand AI, they are more likely to spot areas in their own work that could benefit from automation or advanced analytics. For example, a risk manager might identify how AI can assist in identifying emerging risks more efficiently by analyzing large datasets. A financial analyst might see how AI can streamline data collection and reporting, freeing up time for in-depth market analysis. This broader understanding helps drive innovation from within and uncovers new opportunities for AI to enhance everyday tasks.

Collaborative intelligence: humans and AI working together

As AI rapidly advances, becoming increasingly capable of handling tasks traditionally performed by humans, it’s natural for fears to arise about AI replacing workers. However, these concerns often miss a crucial point: AI’s real strength lies in its collaborative potential with human professionals, not in replacing them.

AI’s power comes from its ability to process vast amounts of data from diverse sources – such as financial documents and regulatory texts – extracting meaningful insights with incredible speed. This allows AI to quickly recognize patterns and provide real-time recommendations – tasks that would take much longer for humans to perform manually.

Rather than replacing workers, AI enhances human capabilities by handling data-heavy, routine tasks. This frees professionals to focus on higher-value responsibilities like critical thinking, decision-making, and creativity. In finance and risk management, AI can boost our abilities by providing real-time insights, recognizing patterns in data, and even suggesting actions based on analysis. This partnership between humans and AI leads to better outcomes for businesses and their clients, fostering greater efficiency and innovation.

Reimagining your business with AI

To fully capitalize on AI, organizations must rethink their operational processes. AI implementation should not be about simply adding another tool – it requires reimagining the way a business operates. This starts with identifying areas that can be improved and understanding the problems that AI can solve, even those that were previously invisible.

AI can reveal operational inefficiencies or highlight areas for improvement that were difficult to detect using traditional methods. Companies should engage in a cocreation process with stakeholders, seeing AI as a partner that enhances workflows, rather than a threat. By envisioning how AI can collaborate with employees to improve processes, organizations can design more innovative and agile operations.

Building for the future

In conversations with our clients, we’ve found that they typically want to improve four key areas: flexibility, speed, scale, and decision-making. AI can address all of these. It enables companies to scale operations faster, make quicker decisions based on real-time data, and personalize services to better meet both client and business needs.

To achieve these goals, however, organizations need to do more than invest in AI tools. They need a comprehensive AI strategy, governance model, and a clear roadmap for implementation. These elements ensure that AI not only fits into existing workflows, but also drives long-term growth and innovation.

Why you can’t wait to adopt AI

Many companies believe they can afford to wait for AI to mature or for AI talent to become more readily available before adopting these technologies. While this may seem like a cautious approach, it comes with significant risks. Transitioning from AI pilot projects to full-scale production takes time, requiring organizations to reengineer processes, retrain staff, and customize AI systems to their needs. These steps demand considerable investments in both time and money, and companies that wait may find themselves falling behind.

As early adopters refine their AI systems, they will capture a significant market share, reduce operational costs, and improve overall performance. Companies that delay adoption will struggle to catch up. By the time they implement AI, early movers will be operating at lower costs and greater efficiency, leaving latecomers with a far greater challenge.

Delaying AI adoption doesn’t just risk falling behind, it could mean never fully catching up. In a fast-evolving landscape, companies that hesitate may miss out on the advantages of AI, ultimately putting their competitiveness and long-term success at stake.

The time to act is now

The future of finance and risk management lies in AI, but simply adopting the technology isn’t enough. Organizations need to rethink their operations, train their teams, and develop AI strategies that include governance and security. Those that move now will not only position themselves for success, but may even lead the way in reshaping the industry. AI is not in the distant future, it's here. Embrace it today to secure a stronger tomorrow.

^{Source: Collaborative Intelligence: Humans and AI Are Joining Forces By: H. James Wilson, Paul Daugherty, Jul 1, 2018}