Companies have a long way to go building risk management ...

An issue of the Harvard Business Review

Global companies are intensifying their focus on enterprise-wide risk management (ERM) in the wake of the 2008 financial crisis and recession, but most executives feel their companies have a long way to go in building an effective, risk aware culture, according to a new survey by Harvard Business Review Analytic Services.

Over two-thirds of 1,419 business executives surveyed in the new research sponsored by Zurich said risk management has increased in importance over the past three years. Yet only one in ten said their executive management is ?highly effective? in creating a strong risk-management culture.

And while the need to link risk information to strategic decision making was identified as extremely important, only 14% felt their organization did that extremely well.

Among the top barriers to better risk management cited:

• Over-focusing on compliance rather than fundamental processes (42%)
• Lack of strong management support (41%)
• Reluctance to de-silo related information (35%)

A majority of the companies said their approach to enterprise risk management continues to be basic or reactive. However, about 40% of executives surveyed considered their approach to ERM to be ?proactive,? involving the board as well as business and functional leaders at all levels of the organization.

This ?best practice? group included financial services, health care, and energy companies and those with 10,000-plus employees. But many other industries have instituted ERM processes or improved their practices.

Executives in companies taking the proactive approach said that integrating risk management and corporate goals was key to gaining competitive advantage.

The study made clear that risk management needs to have a clear owner to be effective? executives reported that Chief Risk Officers are far more likely to oversee risk management now, than three years ago, although the CEO bears ultimate responsibility.

The study also found that at companies with strong ERM processes, ?ownership? of risk stays in the hands of business and functional leaders. The CRO?s role is to advise and assist them, staying in regular communication and providing them with resources to better manage risk themselves. The result is what executives interviewed for the study call a ?collaborative culture? that integrates risk awareness into the company?s strategic planning.

?Ownership of risk cannot be overstated, since the survey indicated that companies that employ a Chief Risk Officer, who works in tandem with the CEO and their executive leadership, scored highest in proactively managing risk in the organization,? said Alex Clemente, managing director of Harvard Business Review Analytic Services.

Integrated approach helping

Some of the top benefits of ERM that respondents cited were not directly related to risk management. Instead, respondents described the integrated risk management approach as helping their companies achieve better operational performance by removing siloed communication and by fostering:

• Improved strategic decision making (39%)
• Improved governance (34%)
• Increased management accountability (31%)

Executives in the survey stressed that their goal was not to create a risk-averse environment but one in which better measurement and understanding of risk gives them more confidence about making strategic decisions to build the business.

?There is no doubt that in today?s challenging environment customers, shareholders and employees expect clear commitment to comprehensive and forward looking risk management from top management and board. Supporting the findings of the survey that it is extremely important to link risk information to strategic decision making, 41% of the companies said they are deepening and extending the ties between risk management and strategic planning,? said Axel Lehmann, Chief Risk Officer at Zurich.

To access a copy of the Risk Management in a Time of Global Uncertainty report, please visit:?www.hbr.org/white-paper/risk-management.

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Tags: barriers, chief risk officer, Harvard Business Review, risk management

Source: http://www.techjournalsouth.com/2012/03/companies-have-a-long-way-to-go-building-risk-management-awareness/

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Source: http://sciupni.posterous.com/companies-have-a-long-way-to-go-building-risk

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