Misaligned and fragmented risk functions jeopardizing organizations’ performance, says Ernst & Young
New York, 17 August 2009 – Ninety-six percent of global organizations today 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 examines 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 has advanced but more needs to be done
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. In fact, while only two percent of survey respondents plan to decrease investments in risk management, almost two-thirds (61%) say they do not plan to commit more resources to risk management over the next 12-24 months.
Gerry Dixon, Global Risk Leader, explained, “Recent events have forced a maturing of risk management and many companies can take pride in the progress they have made. However, now is not the time to become complacent. Leading organizations recognize the continuing opportunity to improve their risk assessments, enhance monitoring, reduce costs and better integrate information technology.”
Lack of coordination among risk functions is a threat
The survey also shows that the number of risk management functions featured in global organizations has increased to keep up with compliance requirements. Despite this increase, the coverage and focus of these areas have become both increasingly difficult to manage and are compounded by a lack of alignment.
For example, 73% of respondents indicate they have seven or more risk functions. However, 67% have overlapping coverage among two or more risk functions and half of those surveyed report experiencing gaps in terms of 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 demonstrates that companies want improved risk coverage, while decreasing costs and improving value. Organizations aim to have their risk and control activities aligned and coordinated.
Survey respondents also indicate that the key to making this possible lies in the coordination of the risk and control functions as well as the business units. This includes aligning the mandate and scope of each group, coordinating infrastructure and people, developing consistent methods and practices and sharing information and technology.
According to the results, 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.”
To read more please click Future of Risk (pdf, 282kb).
About the report
The Ernst & Young 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, 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.
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Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. This news release has been issued by Ernst & Young LLP, a client-serving member firm of Ernst & Young Global Limited located in the U.S.
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