Efficient risk management is a way to move forward from the crisis
Prague 28 August 2009 - Ninety-six percent of organizations believe they have an opportunity to improve their risk management functions. Furthermore, nearly half say committing additional resources to risk management could create a competitive advantage, according to Ernst & Young’s Future of Risk survey, which examined organizations’ attitudes toward risk management.
The survey of more than 500 senior executives, predominately those at the C-suite and board level, reveals the downturn is heightening awareness among companies of the need to manage risk more effectively.
Jan Fanta, partner in the Advisory Services and Risk Management Department of Ernst & Young, says, “Although many organizations have boosted the size and reach of their risk management functions, this does not always equate to an increase in effectiveness. In fact, too few organizations can claim that shared reporting, data exchange and co-ordination consistently occurs among their various risk management functions. In the end, this only leaves the organization more vulnerable to the threat of risk.”
Despite improvements in risk management over the past several years, organizations should continue to challenge their approach - especially now when most will be asked to do more with the same or limited additional resources. While only two percent plan to decrease investments in risk management, almost two-thirds (61%) of survey respondents said they do not plan to commit more resources to risk management over the next 12-24 months.
Pavel Riegger, Risk Management Advisory partner, Ernst & Young Czech Republic, says: “The global downturn has forced a maturing of risk management and many companies have succeeded in achieving a significant progress. However, now is not the time to become complacent. Companies should strive to improve their risk assessments, enhance monitoring, reduce costs, and better integrate information technology. For example in the Czech Republic, corporations have not always effectively managed their relationships with banks. Now it is the right time to focus on streamlining liquidity management. Those companies that will commit more resources to risk management will be better equipped to capitalize on future developments.”
Lack of co-ordination among risk functions is a threat
Seventy-three percent of respondents indicated they have seven or more risk functions. Furthermore, sixty-seven percent have overlapping coverage with two or more risk functions. Fifty percent of those surveyed reported gaps in coverage.
Pavel Riegger explains: “In the Czech Republic, we are witnessing a change in the view on the scope and alignment of company functions, with managers now focusing on risk management functions. However, according to our experience, organizations in the Czech Republic and Central Europe lack an overall risk management framework, which is an issue faced by both financial institutions and the corporate sector.”
“Risk management functions in Czech companies are often disconnected from one another and are not aligned with the wider business strategy. Risk management scope set to cover all company functions contributes to successful elimination of significant risks within the organization and should be seen – and not only during the economic downturn – as a key priority.”
An improved future for risk management
The survey demonstrated that companies want improved risk coverage whilst decreasing costs and improving value. They also aspire to have their risk and control activities aligned and co-ordinated. The key to making this possible lies between the risk and control functions and the business units. This includes having an aligned mandate and scope, coordinated infrastructure and people, consistent methods and practices and common information and technology.
Survey respondents clearly recognize that risk management provides significant benefits to their organizations beyond better identification and understanding of key risks. Most respondents also report benefits from improved business performance (99%), protection of business value (98%), better decision making (98%) and improved compliance with regulations (98%).
Jan Fanta concluded, “Leading companies are creating a competitive advantage by using the economic downturn as an opportunity to make practical yet valuable improvements to the way risk is managed. More than ever, organisations need to have a comprehensive and coordinated risk management approach with strong executive oversight and board of director governance.”
