​​Reflections on the Economist Intelligence Unit's Report on Risk Management​

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Fall Guys: Risk Management in the Front Line, is an interesting read. Here are a few highlights and observations (the bolded highlights are mine):

“In the financial services industry, there is a clear consensus that serious mistakes were made with either risk management or risk governance….

“This renewed zeal for risk management extends far beyond the banking sector. Events such as the financial crisis, and more recently the oil spill in the Gulf of Mexico, have reminded senior executives that failures in risk management can prove to be extremely costly, not just to a company’s financial performance, but to their own careers and, sometimes, the lives of employees. The incentive to ensure that there is a clear and consistent approach to managing risk across the enterprise has never been greater.

“However, although risk management is currently enjoying an unprecedented level of authority and visibility, it remains a function in transition. Examples of companies that take a genuinely strategic approach to their ri​​sk management remain few and far between. Communication between risk functions and the broader business can sometimes be fragmented, while an enterprise-wide culture and awareness of risk can be difficult to achieve.”

“Senior executives surveyed for this report clearly recognise the importance of strategic risk management to their business. They see major strategic threats, such as weak demand and market volatility, as the biggest risks they face over the next 12 months, and regard the identification of new and emerging risks as the key goal of risk management. But they also see this aspect of risk management as among their biggest weaknesses, with just 35% saying that their company is effective at anticipating and measuring emerging risks.”

“Less than one-half of companies involve their risk functions formally in any major strategic decision, such as evaluating new market investments or M&A opportunities. Few companies even expect risk functions to play a support role in decision-making, with just 41% saying they expect risk managers to provide analysis to help management set corporate strategy.”

Less than one-half of companies have invested in risk processes, while less than one-quarter have allocated funds to headcount or training of managers in the central risk function.”

“However, although confidence levels in the knowledge of executive management are reasonably high, many respondents worry that the technical risk knowledge of non-executive directors is lacking.”

There is a chart at the end of the document that I found interesting. The authors asked “What, in your opinion, are the most important objectives of the risk management function?” The top three were:

  1. Identifying new and emerging risks – 58 percent.
  2. Enabling managers to make better decisions – 45 percent.
  3. Ensuring corporate survival – 36 percent.

What do you think of the report? What are your primary takeaways?

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