Increasing economic volatility and complexity have elevated the importance of risk management as a key priority and management function.

Risk management, viewed largely as a means of crisis management in the wake of the 2008 global financial crisis, has moved up the corporate agenda as a key to competitive advantage, according to a new report by Accenture.

In 2009, 85 percent of executives surveyed said their company’s risk management needed to be aligned with the company’s business strategy. The management consultancy’s recently released 2011 Global Risk Management Study suggests that significant progress has been made in closing that gap.

Based on a survey of 397 executives across 10 industries, the 2011 study shows that 85 percent of respondents said that risk has actually become a driver of competitive advantage for their company. Nearly half (49 percent) of the respondents believe that corporate risk management will enhance the likelihood of long-term profitable growth for their company, and 48 percent said it will support sustainable future profitability.

“Two years ago, the business community was still in a state of shock, only beginning to recover from a global economic meltdown,” the report states. “Then, risk management looked a lot more like crisis management than a forward looking, enterprise-wide approach to effectively manage the spectrum of business risks in a way that enables sustainable, long-term growth.

“Today, across industries and around the world, executives are much more likely than they were two years ago to have invested in and advanced their risk management capabilities, and almost all executives surveyed indicated that risk management is a higher priority now than it was in 2009,” Accenture continues.

The volatility and complexity of the marketplace remain primary drivers. Volatility in cash-flow planning and commodity markets remain challenging issues in most industries, and the types of risks to which companies are exposed, as well as their severity, are growing. According to surveyed executives, companies are increasingly concerned about risks ranging in areas from the supply chain and operations to regulation and reputation. Financial fraud and crime are also on the rise.

More than 80 percent of executives now believe that the increasing volatility and complexity of the economic and financial environment have elevated the importance of risk management as a key management function.

As further evidence of the rising role of risk management as a corporate priority, nearly half (45 percent) of respondents said their company has a chief risk officer (CRO) today, up from only 33 percent two years ago.

Indeed, global exposure to multiple unforeseen elements of their business on a worldwide level has prompted more companies to adopt a CRO role.

One of the latest manufacturers to adopt the CRO position is United States Steel Corp. In the newly created role, the CRO will be responsible for “expanding the company’s already comprehensive financial and business risk management practices to establish a more integrated, systematic and enterprise-wide approach to the assessment, analysis and monitoring of business risks and opportunities and the identification of strategies for managing risk,” according to an announcement of the appointment earlier this month.

Accenture’s findings also indicate that risk management is receiving more board visibility. Twenty-three percent of respondents said their company’s CEO now owns the responsibility for risk management, up from 13 percent two years ago. Perhaps most significantly, 79 percent of the executives surveyed said the person responsible for risk management in their organization reports directly to the CEO.

Based on survey analysis, the following risk management capabilities rose to the top when it comes to mastering risk management:

• Creating processes and mechanisms that link risk to business performance;
• Involving the risk organization in key decision-making activities, such as strategic planning;
• Improving the sophistication of measurement, modeling and analytics to anticipate risks;
• Managing regulation and compliance, and developing relationships with regulatory agencies;
• Integrating risk management capabilities across business units and organizational structures;
• Establishing a dedicated, C-level risk executive with oversight and visibility across the business;
• Infusing risk awareness across the organizational culture, putting in place detailed training; and
• Investing in continuous improvement, as risk management is an ongoing, evolving capability.

“The best companies are not just improving risk management; they are using it to gain competitive advantage as they integrate their risk function and include it in strategic planning for a more proactive approach to decision making,” Steve Culp, managing director of the Accenture Risk Management consulting service line, said in an announcement of the findings. “As a result, new business opportunities are being pursued with a clearer view of the potential upside and downside, and executives are better able to engage in contingency planning to respond more effectively when risks become issues.”

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Resources

Report on the Accenture 2011 Global Risk Management Study
Accenture, June 29, 2011

…Risk Management Gains Seat at CEO Table, Driving Competitive Advantage…
Accenture, June 29, 2011

U.S. Steel is Latest Manufacturer to Adopt Chief Risk Officer Role
by Jonathan Katz
IndustryWeek, Aug. 3, 2011

…Executive Appointments in Corporate Risk Management and Finance Organizations
United States Steel Corporation, Aug. 1, 2011