Align Risk and Performance Management

Aug. 13, 2009
It's a business imperative that drives more resilient companies, new report says.

More resilient companies more closely link risk and corporate performance management, states PricewaterhouseCoopers in a new report. Yet only about one-third (37%) of nearly 100 senior executives surveyed by the consulting firm in 2008 indicated that their companies link risk indicators to corporate performance indicators.

In "Seizing opportunity: Linking risk and performance," PwC aims to help companies better manage risk and performance across an organization. And by "better," the firm means, at least in part, to move away from a risk approach that focuses solely on compliance. Indeed, "Focusing too narrowly on regulatory compliance -- an important but discrete element of business risk -- can result in silos of risk and performance information that can lead to dangerous blind spots for business," says Dave Pittman, PwC advisory partner and leader of the firm's U.S. operations practice.

The consulting firm also is addressing more than risk in the supply chain. "Taking that integrated view to the next level and considering risk and performance in tandem, across a whole organization, can further improve performance and reduce operating costs," the report states.

To build a risk-based performance management program, companies should address a host of questions, including:

  • What are the greatest sources of value creation -- and destruction -- across my business?
  • Where or when has my company most clearly failed to realize or deliver value to key stakeholders? Where have we been most successful?
  • Where does accountability for risk and performance management currently reside within my organization? Does that accountability structure facilitate the integration of business information around potentially risky opportunities?
  • How does my organization currently measure the potential impacts of risk -- and quantify the associated reward?
Integrating risk and performance management occurs during strategy setting, writes PwC, and begins with C-suite executives reaching consensus on clearly defined business objectives. Once that consensus is reached, the executives can begin to "identify the key risks that may present an opportunity to pursue those business objectives, or impede their ability to achieve them." The report notes that for many companies, "that kind of risk-informed strategic plan begins gathering dust the minute the planning cycle ends."

"Seizing opportunity" offers numerous ideas to help a company develop an integrated risk and performance management approach. They include:

  • A few essential risk-informed performance indicators are better than a laundry list of metrics.
  • Information needed to integrate business risk and performance must be consistent and accessible. In many instances it is buried or spread across systems that don't synch up.
  • A collaborative, integrated accountability structure that includes incentives may be a better approach than a centralized top-down approach.
The entire report is available online at Seizing opportunity: Linking risk and performance.

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About the Author

Jill Jusko

Bio: Jill Jusko is executive editor for IndustryWeek. She has been writing about manufacturing operations leadership for more than 20 years. Her coverage spotlights companies that are in pursuit of world-class results in quality, productivity, cost and other benchmarks by implementing the latest continuous improvement and lean/Six-Sigma strategies. Jill also coordinates IndustryWeek’s Best Plants Awards Program, which annually salutes the leading manufacturing facilities in North America. 

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