Three Progresses Made in Corporate Risk Management

Friday, July 13, 2012 | comments

The economic turmoil makes all businesses large or small to rethink their risk management strategy, through all those reputable consulting/audit firms’ survey and deep dive research, the consistent message is sent out about risk management as strategic imperative, create value via it and deliver the high performance business result.

There are three Progresses in risk management leading companies made, to set up the solid footprint for others to follow:

1. Risk Management is Top Management Strategic Matter

There’re growing number of organizations shifted their risk management orientation from bottom-up to top-down, with more senior management and board involvement, to take charge with risk issues and have been seeking to improve their ability to define and communicate a clear, consistent, enterprise-wide message about healthy risk appetite and variety of possible situations and risk scenarios.

 For leading organizations, ERM is already an integral compe­tency and top priorities for C-Suite executives, providing them a holistic process for connecting the dots on risk across the orga­nizations — and pushing the responsibilities and solutions of day-to-day risk ownership out to business managers.

One of the best ways to protect against unknown risks is to think about vulnerabilities rather than trying to predict risk event, and don’t forget to cultivate risk-aware culture. 

2.      Risk Management : from Value Protection to Value Creation

From industrial research (EY),  the companies with more mature risk management practices outperform their peers financially; the companies with more mature risk management practices generated the highest growth in revenue, EBITDA and EBITDA/EV

The findings suggest that:

·         The top-performing companies (from a risk maturity perspective) implemented on average twice as many of the key risk capabilities as those in the lowest-performing group.

·         Companies in the top 20% of risk maturity generated three times the level of EBITDA as those in the bottom 20%.

·         Effectively harnessing technology to support risk management is the greatest weakness or opportunity for most organizations.

Value Creation Opportunities may include:

• Achieving superior returns from risk investments

• Accepting and owning the right risks to achieve competitive advantage

• Improving controls around key processes

• Using analytics to optimize the risk portfolio and improve decision-making

• Using risk management savings to fund strategic corporate initiatives

3.   Risk Management embedded in an organization’s DNA

From industry survey:

·         (52%) said they intended to elevate the profile of risk management throughout their organizations;

·         The next most popular responses were reorganizing risk management processes (39%)

·         Providing additional training for staff (37%),

·         Incorporating new technology (31%)

·         (77%) said that their companies employed a centralized model with regard to risk management;

The efforts on managing risk more holistically or in a more integrated fashion is critical for long run, as financial performance is highly correlated with the level of integration and coordination across risk, control and compliance functions. That said, risk management need get integrated cross departments and functions. 

Current risk management systems and processes are not highly automated, Strategic and technology risk management to see highest budget increases in automation. From investment perspective, analytics is the next big frontier for risk management, as we’ve been living in a more complex and interconnected world. Data privacy and security was also singled out as an area that is likely to receive increased investment during 2012 and beyond. Technology can play an pivotal role in enabling change and in leveraging the right balance among risk, cost and value across the enterprise.

Now Risk Management becomes fourth pillar of business beyond people, process and technology, are you ready to shape it up?

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