Executives push for new approach to risk management – Accenture study

85 percent of corporate executives reported the need to overhaul their company's approach to risk management in order to improve business results based on the lessons learned in the current economic downturn. This was the main finding of Accenture's 2009 Global Risk Management Study, released earlier this week. Ineffective integration of of risk, return and capital issues was cited as one of the main problems with the risk management functions in the executives' companies.

The consulting firm polled 260 chief financial officers, chief risk officers and other senior management staff whose duties include risk management at large companies in 21 countries, and also found that 40 percent of the executives' companies had already taken steps to to increase their investments in risk-management capabilities over the next six months. Another 31 percent of the executives reported that their businesses are considering an increase in their future investment in risk management capabilities.

Almost a half of the executives said that their company's risk management function is very much involved in strategic planning (48 percent) or investment and divestment decisions (45 percent), but only 27 percent said the same of their company's objective-setting and performance management functions, indicating a lack of integration of the existing risk management and performance management processes.

Dan London, managing director of Accenture’s Finance & Performance Management practice, said: “Executives could improve their organizations’ performance and position themselves for economic recovery by linking and balancing risk management and performance management to aid their decision-making and increase shareholder returns. Being effective at this also requires companies to integrate their risk management capabilities enterprise-wide.”

The common problems with risk management cited by the executives in the study were:

• Ineffective integration of risk, return and capital issues in decision-making (identified by 85 percent of respondents);
• Lack of alignment between the company’s strategies and its risk appetite (85 percent);
• Insufficient enterprise-wide risk culture (82 percent);
• Inadequate availability of timely risk, finance and business data (80 percent);
• Lack of integration and aggregation across all risk types (78 percent); and
• Ambiguous risk responsibilities between corporate and business units (78 percent).

“The current economic downturn is the ultimate stress test of a company’s risk management function, and the lessons learned can be leveraged to restore confidence and create a stronger, better, integrated and aligned platform for improving performance under a variety of business conditions,” London said. “Leading companies recognize that an expanded, integrated risk-management program supported by technology that allows management to monitor risk-related factors across a company is not just a protective tool but one that can provide companies with a competitive edge in a constantly changing world.”

Ovum shared similar findings this week. In a report titled "Managing Risk During an Economic Downturn," an Ovum analyst argues that reducing a company's focus on risk management during an economic crisis is a false economy.

Ovum's report also reveals that businesses are rethinking their approach to risk management and focusing on giving it an even more central role in their companies' planning and management.

"The financial crisis has provided a very high profile example of how poor risk management practices can severely impact not only a business, but also a whole industry sector,” says Helena Schwenk, author or the report and senior analyst at Ovum. "While the banking system recovers and readjusts from the crisis and moves to a more tightly controlled and regulated risk management environment, other industry sectors are advised to take heed of the risk management lessons learnt from this painful episode.”

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