Risk management has emerged from the financial crisis with greater authority and visibility, giving its professionals a unique opportunity to play a more prominent role in high level decision making. However, the risk function still faces questions about its capabilities and challenges based on outmoded perceptions of its role, according to the findings of the latest Economist Intelligence Unit (EIU) report into risk management in business sponsored by ACE.
Based on the findings of a global survey of 500 senior executives and risk professionals, the report sets a clear direction for the profession if it is to succeed in securing a central, long-term role in corporate decision making.
While the importance of strategic risk management was clearly recognised by businesses - with almost 60% of respondents confirming its value in identifying new and emerging risks, their views of its effectiveness were less clear cut. For instance only 35% of respondents felt their company was effective in anticipating and measuring emerging risk; half felt that there was a good understanding of risk across their business and fewer than half (46%) felt their business was successful at linking risk management with overall corporate strategy.
The profession’s continued exclusion from strategic decision making in many organisations was also confirmed with just 41% saying they expect risk managers to provide analysis for top management to inform corporate strategy. Fewer than 50% claimed to involve their risk teams formally in major strategic decisions.
According to Andrew Kendrick, Chairman and Chief Executive Officer of ACE European Group, “The findings highlight a need for risk managers to demonstrate the value they can add, both at a tactical level and in the boardroom, and to maintain a strong focus on education and dialogue within their organisation to help build a robust risk culture and a clear understanding of the role.”
The report goes on to indicate that a contributory factor to the challenge risk managers face in gaining access to the boardroom may be an outmoded perception of their role. When asked where they expected risk management to make the most meaningful contribution, the largest group of respondents (42%) cited ‘conforming with regulatory requirements,’ suggesting that many still associate the profession with preventive, ‘box-ticking’ work.
Despite the challenges, the survey reveals a growing understanding among risk managers that the most effective way to build the stature of their role is to focus on its more constructive aspects, reinventing themselves as ‘business partners’ instead of ‘business preventers.’ The ability of the profession to help businesses make better decisions was cited as its second most important objective, for instance three quarters of respondents wanted their risk function to spend at least 25% of its time on ‘enabling activities’ such as working with business managers to achieve objectives.
Mr Kendrick says: “Over the last year, the risk manager’s voice has finally started to be heard within many organisations and the understanding of the valuable role risk managers can play in challenging the discussion of key business issues is growing.
“But, the profession now stands at a cross roads. If it allows itself to be side-lined into the purely technical aspects of risk management and fails to take the steps necessary to engage colleagues and build a risk culture within their business, it will lose its relevance as better economic times return.
“If, on the other hand, risk managers concentrate on proving their worth as positive and proactive contributors and demonstrate that they can help their businesses take advantage of risk, they will strengthen their position and ultimately secure their future as an invaluable corporate resource.”