Companies with more mature risk management practices outperform their peers financially.
Most organizations perform the basic elements of risk management.
However, our research and experience suggest that companies with more mature risk practices do better financially. They outperform their peers by making stronger decisions, more efficiently deploying scarce resources and reducing their exposure to negative events.
Companies around the world have made substantial investments in personnel, processes and technology to help control business risk. Historically, these risk investments have focused primarily on financial controls and regulatory compliance.
However, these investments have often not addressed more strategic business risk areas. As a result, senior executives may not perceive risk management as strategic to the enterprise.
Senior executives also may not have enough confidence in their ability to identify and address the risks that could impact the financial performance.
Our research and experience suggest that organizations with more mature risk management practices outperform their peers financially.
Summary of key findings
Using a global survey (based on 576 interviews with companies a review of more than 2,750 analyst and company reports), we assessed the maturity level of risk management practices and then determined a positive relationship between risk management maturity and financial performance.
We identified the leading risk management practices that differentiated the various maturity levels and organized them into specific risk components.
Our 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%
- Financial performance is highly correlated with the level of integration and coordination across risk, control and compliance functions.
- Effectively harnessing technology to support risk management is the greatest weakness or opportunity for most organizations.