Tuesday, 22 November 2011

Economist Intelligence Unit - Getting new perspective on strategic risk

This out last week from the Economist Intelligence Unit, always a great spot for benchmarking, and at a verty opportune time for anyone working on ORSA or enhancing the visibility of strategic risk in general. Sample size is almost 500, around a month old, and all respondents have responsibility for risk management in their respective firms. The research is also supplemented by interviews with a few big cheeses.

Again, it;s a quality publication, so doesn't need much sifting through, but the salient points for me include;
  • Lot of agreement that Risk should challenge management's view of the future (two-thirds)
  • Almost three-quarters agree that flexibility is more important that ability to plan for the long-term (indeed a third of respondents don't even plan for events a decade or more into the future)
  • "By extending their risk models further into the future, companies must be aware that the data being used to populate them are increasingly unreliable" - interesting in the context of ORSA (i.e where does one stop projecting)
  • Main barriers to considering longer term risks are executive management's focus on immediate risks (41% of respondents), and the nature of the business making such work redundant (36%)
  • Almost 60% have their Risk functions actually participating in the formulation of strategy
  • The risk planning horizon doesn't appear to be aligned with the strategic planning horizon (risk planning being much shorter) - obviously changes with ORSA for insurers, but not sure what the resolution is for other organisations.
  • 60% have one of the most important objectives of the risk management function being the identification of new and emerging risks - may actually be the cause of some of the mismatch mentioned above. Despite that, only 40% feel they are doing a better than average job of anticipating and measuring such risks
  • Main areas for enhancing risk management practices have been to make risk management more forward looking (50%), and allocating more board and senior management time to long-term risk analysis.
  • 40% have their CEOs as being responsible for exploring long-term impact of risk on strategy - very high, considering that boards/committees were alternative responses
  • 44% think a bigger commitment to ERM will help align risk and business strategy, while 33% thought that the Risk function presenting themselves more as business enablers would do the same thing.
  • Only a third of Risk functions report to the board quarterly - seems very low
  • 30% have no plans to use horizon scanning - beyond mad!
  • Only around half of respondents have or plan to have a CRO

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