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Misaligned and fragmented risk functions jeopardizing organizations’ performance –
Ernst & Young study
London, Moscow, 17 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.
Norman Lonergan, Global Advisory Leader for Ernst & Young, said, "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 coordination consistently occurs among their various risk management functions. In the end, this only leaves the organization more vulnerable to the threat of risk."
Risk management is critical and more needs to be done
In spite of the challenging economic environment, 38% of our respondents plan to commit more resources to strengthen risk management, while only 2% intend to decrease expenditure in this area.
Galina Malashenko, Ernst & Young Partner and Head of the Business Risk Services Group in the CIS, comments: "Our experience with major companies in Russia confirms the survey findings: recent events enhanced awareness of the value of sound risk management. Views expressed by the executives, directors and shareholders of large companies interviewed by us within the past six months indicate organizations' commitment to invest in creating an effective comprehensive risk framework. This goes both for material resources and level of management attention to risk management."
Lack of coordination among risk functions is a threat
The survey also revealed that the number of risk management functions has increased to keep up with compliance requirements. However, the coverage and focus of these multiple risk functions has become increasingly difficult to manage and is compounded by a lack of alignment.
Seventy-three percent of respondents indicated they have seven or more risk functions. Furthermore, 67% have overlapping coverage with two or more risk functions. Half of those surveyed reported gaps in coverage.
Dixon said, "Risk management functions within an organization often exist in silos that are disconnected from one another and the wider business strategy. As a result, risks identified in one area may not be communicated or recognized by another. Moreover, different areas within an organization may have different views on the severity or importance of certain risks."
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 coordinated. 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%).
Dixon 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, organizations need to have a comprehensive and coordinated risk management approach with strong executive oversight and board of director governance. The opportunity to make those changes is now."
About the report
Ernst & Young’s Future of Risk report is based on a survey of 507 C-suite and board level executives in global companies – the majority with global revenue turnover in excess of US$1 billion – across multiple industry sectors. The survey was conducted for Ernst & Young by the Economist Intelligence Unit in June and July 2009.
About Ernst & Young
Ernst & Young is a global leader in assurance, tax and legal, transaction and advisory services. Worldwide, our 135,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential.
Ernst & Young expands its services and resources in accordance with clients’ needs throughout the CIS. 3,700 professionals work at 16 offices throughout the CIS in Moscow, St. Petersburg, Novosibirsk, Ekaterinburg, Togliatti, Yuzhno-Sakhalinsk, Almaty, Astana, Atyrau, Baku, Kyiv, Donetsk, Tashkent, Tbilisi, Yerevan and Minsk.
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