Corporate 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.

The report, “Risk Management as a Source of Competitive Advantage and High Performance, Accenture 2011 Global Risk Management Study,” is based on quantitative and qualitative research that was designed to measure and evaluate the progress companies have made since Accenture conducted a similar assessment in 2009. The 2011 study is based on a quantitative survey of executives from 397 companies across 10 industries.

Results specifically from those in the financial services industry include:

•    One-third of executives from banking and capital markets firms said their company has spent more than $100 million on developing their risk management capabilities in the past two years; 22% have spent more than $250 million.

•    Nearly one-quarter of these executives expect their firms to significantly increase risk management spending over the next two years; while 65% expect a moderate increase.

•    More than one-half (51%) of financial services executives believe that managing risk is critical to enabling long-term profitable growth; 44% believe that the risk management function is important to enabling growth. All of the banking and capital markets executives surveyed said that managing risk is a higher priority than it was two years ago.

•    At 79% of financial services firms, the risk leader—typically the chief risk officer—reports directly to the CEO. At nearly all (99%) firms, the risk management team is involved in strategic planning decisions.

•    Of all 10 industries surveyed by Accenture, financial services companies are most likely to have in place an enterprise risk management program (79% compared to survey average of 67%).

•    But there’s room for improvement. Only 11% of retail banking respondents specifically said that they have fully integrated risk management, capital adequacy, and liquidity management functions. More than half (55%) said these functions were integrated to a moderate or small degree.
 
•    Among retail banking respondents, banks’ top three priorities to improve credit risk management are credit risk portfolio management (83%), credit risk data management (83%), and external fraud monitoring (76%). Enhancing stress testing and credit risk reporting with business intelligence capabilities are focus areas for the next two years.

Analysis of the study across all 10 industries revealed the following:

In the 2009 study, 85% of the executives surveyed said their company’s risk management needed to be aligned with the company’s business strategy. According to the new study, significant progress has apparently been made in closing that gap: 85% of the 397 executives participating in the 2011 study said that risk, in fact, has become a driver of competitive advantage for their company. Nearly half (49%) of the respondents believe that corporate risk management will enhance the likelihood of long-term profitable growth for their company, and 48% said it will support sustainable future profitability.

Despite major investments to improve their risk management capabilities, the executives believe their companies still face critical exposure to risk. They also believe the benefits of enhanced risk capabilities have yet to be realized. More than half (52%) of the respondents said their individual company has invested $25 million or more since 2009 to improve risk management capabilities, and one in 10 said their company’s investment has exceeded $250 million. Despite these investments, 83% said additional investments would be made in risk management in the next two years as companies navigate market volatility, manage increased complexity, and address a proliferation of risks ranging from supply chain and other operational issues to new regulations, reputational concerns, and increased threat from financial fraud and other cyber- based crime.

Additionally, more than 80% of the executives said 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 progress being made in elevating the importance of risk management as a corporate priority, 67% of the respondents said their company currently has an enterprise risk management program, and an additional 15% said they have existing plans to implement an ERM program within the next two years.

The study also found that risk management is receiving great board visibility. Nearly half (45%) of the respondents said their company has a chief risk officer today, up from only 33% just two years ago. Nearly one quarter (23%) of the respondents also said their company’s CEO now owns the responsibility for risk management, up from 13% two years ago.

Perhaps most significantly, 79% of the executives said the person responsible for risk management in their organization reports directly to the CEO.

“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,” said Steve Culp, managing director of the Accenture Risk Management consulting service line. “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.” 

Finally, the survey indicates that the top five challenges in the next two years will include: reducing cost, aligning risk management with the company’s overall business strategy, responding to regulatory demands, improving risk measurement, and improving modeling and data management.


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