Managing Risk for High Performance in Extraordinary Times

Managing Risk for High Performance in Extraordinary Times Report on the Accenture 2009 Global Risk Management Study Executive Summary years in developing more rigorous Develop integrated risk In the wake of the global economic risk management capabilities, survey management capabilities. meltdown, chances are there isn’t a respondents highlighted two goals in Risk management must be boardroom or executive management particular: better alignment with the institutionalized, integrated and office anywhere today where the topic overall business strategy and more aligned with the operating model of improving the organization’s risk effective collaboration with their of the business. To be effective, risk management capabilities, processes, business units. management must be a normal and tools and training isn’t top of mind. expected component of the meetings 3. Integration of risk management Companies have stared into the abyss and reviews that are held and the and performance management and they don’t want to get that near questions that are asked. Risk issues is lacking. The risk management that ledge again. must inform governance and decision- capability in most organizations plays making processes, the training people The stakes are even higher given the an important role in strategic decision- receive, the management and leadership scope and seriousness of the economic making but at this point is less involved cultural behaviors expected throughout downturn. The business community has in objective setting and performance the organization and the reward seen global recessions before, but this is management. structures in place. arguably the first multi-polar recession. 4. Increased regulation is expected. That is, the multi-polar world has only Effective integrated risk management Companies expect a more stringent come into existence over the past departs from the fragmented and regulatory and compliance environment decade or so—a world where both the compartmentalized solutions already in the coming years. generation and consumption of in place at many companies. It offers a economic power is emanating from 5. The costs of effective risk holistic view of the enterprise, enabling multiple points around the globe—not management are increasing. The the identification and understanding just from traditional, Western and cost of risk management has increased of a variety of risks, and then feeds that industrialized centers of power. How a significantly over the last three years, understanding into the growth engine multi-polar world reacts to prolonged driven primarily by increased business of the company. An effective response economic duress is still an unknown. complexity, as well as inefficiencies to any particular kind of risk—strategic, in systems, data and processes. market, credit, liquidity or operational— To better understand the challenges depends on rapidly and consistently companies within a multi-polar world 6. Outsourcing of parts of the risk management capability is being used gathering, aggregating and making sense are facing with regard to their integrated of information from both internal and risk management capability, as well as to improve efficiency. Outsourcing of selected processes and systems is being external sources. the approaches, tools and structures that are helping some companies manage risk used to increase the efficiencies of the Improve the quality of information more successfully, Accenture recently risk management capability. and the frequency of risk reporting. conducted its 2009 Global Risk 7. Companies are investing to improve Companies that are more competent Management Study. The research their risk management capability. in managing risk have a higher involved a survey of the risk Despite the current crisis and shrinking frequency of risk reporting to different management attitudes and capabilities budgets, firms are increasing their stakeholders. They are also more likely of more than 250 of the world’s largest investments in their risk management to have standardized risk reporting enterprises, represented by their chief capabilities. procedures. financial officers, chief risk officers and The quality of information and data other risk executives. 8. Optimism still exists about the ability of strong risk management is also critically important. Effective Major findings to drive business performance. risk management and internal controls The following are the major summary Executives continue to believe in the depend on the information provided. findings of the Accenture 2009 Global ability of a strong risk management In our experience, companies that are Risk Management Study: capability to support profitable growth. more advanced in their risk management capabilities have attained a high degree 1. Risk management capabilities Implications for Achieving of granularity in the risk data that are not currently equal to today’s High Performance supports their information reporting. challenges. The current financial Attaining this level of granularity Based on this research study, and crisis has underscored the fact that and specificity is a direct result on our experience working with significant improvements in companies’ of foundational risk management organizations across all industries risk management organizations and processes that have been embedded to improve the ability of their risk capabilities are required. in these organizations. Management management capability to drive 2. Risk management is inadequately business value, the following needs the right information, in the aligned with business strategy and are especially important keys right granularity, at the right moment poorly integrated into business to achieving high performance to assess risks and take action. operations. Asked to name the biggest through an improved,integrated challenge they face over the next two risk management approach: Risk-adjust the company’s performance management capabilities in protecting value or guarding against performance management processes as “advanced.”1 What that means failure. By optimizing both risks and Risk management exists to support, from a risk perspective is that many rewards, companies with effective not stifle, the entrepreneurial spirit of companies cannot adequately focus and integrated risk management a company. If inadequate coordination the risk management organization on capabilities link risk and profitability exists between risk management and what exactly it should be doing to drive objectives; in this way they can improve performance management, executives risk-adjusted business performance. strategic capital decisions and increase may be improperly rewarded for the shareholder returns. They better Increase the involvement of risk/return outcomes of their decisions.