… the rise and fall guys of risk

Have you been wondering what impact the GFC had on the practice of risk management?

If so, then you will be interested in this report from the Economist Intelligence Unit (EIU), “Fall guys : Risk Management in the front line“. The report is free to download.

The EIU is associated with The Economist magazine, and the report is sponsored by ACE and KPMG.

The research was conducted via an online survey in July 2010. The sample was approximately 500 executives from around the world, but does have a large share (25%) from Financial Services sector.

Some headline observations from the report;

• Following the GFC, Risk Management is a ‘hot topic’
  • The top 3 risks (and % of respondents who flagged it) for the next 12 months are;
    • Weak Demand (43%)
    • Instability in one of our major markets (37%)
    • Financial market volatility (33%)
  • It would be interesting to see how many risk managers are actually addressing these risks.
• Despite the focus (or perhaps because these kind of strategic risks have not traditionally been addressed), “examples of companies that take a genuinely strategic approach to their risk management remain few and far between.”
• Risk Managers want to spend more time on the “constructive” and “enabling” aspects of their role.
  • It seems their management want that to happen too. The top 3 “most important objectives” for the risk management function are;
    • Identify new and emerging risks (58%)
    • Enabling managers to make better business decisions (45%)
    • Ensuring corporate survival (36%)
• Despite this, the risk folks see themselves actually putting more effort into the “prevention” activities (controls and monitoring) than the “enabling”.
• Despite being a current hot ticket, Risk Management is not attracting a significant increase in investment
  • The only area that seems to show an increase in investment is risk process (45%)
  • Extra headcount in central risk function was only expected in 21%

What a surprise to read that it is also expected that when the good times return the profile of risk management will be reduced. I was reading this report just after I read Peter Power’s article on “Lessons learned or lessons lost”, which in turn triggered the blog post I have linked here.

Looks like this is another lesson that is likely to be lost!

John Glen has also posted on the EIU report – asking if an upturn in employment will come in time to save many risk practitioners. It seems the answer is maybe!

The report asserts that “companies are looking to embed risk management more deeply in the business”. This means that they are shedding head count in the traditional, centralised risk areas (including BC).

This is not about setting up decentralised risk process units – it is about less people setting up and monitoring risk frameworks, and more people actually doing risk management. That has got to be a good thing.

Hope the report is wrong John and that the good times return to your neck of the woods, but after the risk-related job market picks up a bit.

What does your management see as the greatest risk facing them in 2011?

Are your risk processes able to address the risks that Executive are concerned about?