Managing Risk for High Performance in Extraordinary Times

Based on this research and its experience in helping companies improve their risk management functions, Accenture outlines eight primary lessons to be learned—and the most important keys to achieving high performance through an improved risk management function.

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Press release: Heeding Lessons from Economic Downturn, Majority of Corporate Executives Report Need to Overhaul their Approach to Risk-Management, Accenture Study Finds

In the wake of the economic crisis that began in 2008, risk management has become a top boardroom issue. Although there have been global recessions before, this one is the first to occur in the new multi-polar world, which is characterized by multiple centers of economic power and activity—the industrialized countries are no longer the major players in the global economy. Just how a multi-polar world reacts to prolonged economic stress remains unclear.

Accenture recently conducted a global risk management study. Surveying the risk management attitudes and capabilities of more than 250 of the world’s largest enterprises, the study aimed to understand better the challenges faced by these companies in regard of their risk management organization, attitudes and capabilities.

• About half of the respondents believed that their company was well prepared to face the current level of economic turmoil.
   
• More than 85 percent of respondents indicated that their risk management capabilities needed to change.
   
• Forty-two percent of respondents pointed to the need for better integration of risk, finance and business data.
   
• Eighty percent of respondents say that poor data quality, inefficient reporting and fragmented systems are increasing the cost of risk management.
   
• Risk managers spent only 20 percent of their time advising business units.
   
• More than 70 percent of respondents have increased or plan to increase spending on risk management.

The Accenture 2009 Global Risk Management Study found evidence for eight primary lessons to be drawn from how most risk management functions performed in the current economic crisis:

• Risk management capabilities are not equal to today’s challenges. Significant improvements in companies' risk management organizations and capabilities are required.
   
• Risk management is inadequately aligned with business strategy and poorly integrated into business operations. Survey respondents highlighted two goals in particular: better alignment with the overall business strategy and more effective collaboration with their business units.
   
• Integration of risk management and performance management is lacking. The risk management function is less involved in objective setting and performance management.
   
• Increased regulation is predicted. Companies expect a more stringent regulatory and compliance environment in the coming years.
   
• The costs of effective risk management are increasing. The increased cost of risk management is driven primarily by greater business complexity, as well as inefficiencies in systems, data and processes.
   
• Outsourcing parts of the risk management function can improve efficiency. Leading companies are outsourcing selected processes and systems to trusted service providers to increase efficiencies and take advantage of specialist knowledge.
   
• Companies are investing to improve their risk management function. Despite shrinking budgets, firms are increasing investments in risk management capabilities.
   
• Optimism still exists about the ability of strong risk management to drive business performance. Executives continue to believe in the ability of a strong risk management function to support profitable growth.

Based on this research study, and on our experience working with organizations across all industries, Accenture believes that the following are especially important keys to achieving high performance through an improved risk management function:

• Develop more integrated risk management capabilities. Risk management must be institutionalized, integrated and aligned with the operating model of the business. It must offer a holistic view of the enterprise, enabling the identification and understanding of a variety of risks, and then feed that understanding into the growth engine of the company.
   
• Improve the quality of information and the frequency of risk reporting. Companies that are more competent in managing risk have a higher frequency of risk reporting to different stakeholders.
   
• Risk-adjust the company’s performance management processes. Combining risk-adjusted metrics with traditional asset liability management and profitability performance measurements can provide a company with a more balanced view.
   
• Increase the involvement of the risk function in driving value creation. Accenture believes that companies have an opportunity to employ risk management as a competitive differentiator to create value while also protecting the interests of shareholders and other key stakeholders cost-effectively. Improved compliance is an important goal, but higher goals must also be pursue

Contact us to find out how Accenture can help your company improve its risk management capabilities.