Study: Integrated Risk Management Improves Operational Performance, But Few Confident in Their Approach

Over the past few years, most global companies have intensified their focus enterprise-wide risk management (ERM).

Unfortunately, though, a new survey by the Zurich Financial Services Group (Zurich) found that only a small fraction of business executives are confident in how their organizations are managing risk.

Here are a few of the key findings from the study. Among the 1,419 business executives surveyed:

Few are certain of their company's approach to manage risk. More than two-thirds said the topic of risk management has increased in the wake of the 2008 financial crisis and recession. Yet, only one in ten said their executive management is "highly effective" in creating a strong risk-management culture. Only 14 percent felt their organization link risk information to strategic decision-making "extremely well."

Less than half consider their approach to ERM "proactive." This "best practice" group the companies that took a comprehensive approach involving the board, as well as business and functional leaders at all levels of the organization included financial services, health care and energy companies and those with 10,000-plus employees.

Three top barriers to better risk management emerged. The top challenges included over-focusing on compliance rather than fundamental processes (42 percent), lack of strong management support (41 percent) and reluctance to de-silo related information (35 percent).

Integrated risk management improves operational performance. Most of those who participated in the poll cited the top benefit of integrated risk management as helping their companies achieve better operational performance by removing siloed communication and fostering: improved strategic decision making (39 percent), improved governance (34 percent) and increased management accountability (31 percent).

Interestingly, the survey also found that two series of events natural disasters and financial and economic crises have risen to the top of companies' risk lists.

And perhaps even more striking, beyond these so-called "headline" risk events, the other most-often-cited risks were largely operational matters, ones that underpin the ability to deliver on strategic goals and maintain a viable, competitive organization going forward.

For example, more than half of companies mentioned risk related to talent retention and acquisition as having risen significantly. Meanwhile, corporate and/or brand reputation has become a more significant concern at half of the companies, while business planning and continuity, as well as legal risks, were mentioned by nearly half.

"The disasters of the past three years have prompted companies to ramp up their ERM processes and work harder at installing a risk management culture. Some companies have also made more basic changes designed to forestall similar occurrences or enable executives to respond to them more effectively," said Axel Lehmann, Chief Risk Officer at Zurich. "And at the same time, however, the threat of unanticipated "black swan" events has encouraged many companies to broaden their search for potential risks."

The full report, Risk Management in a Time of Global Uncertainty, conducted in collaboration with Harvard Business Review Analytic Services (HBRAS), is available here.

TAGS: Finance
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