Breaking Strategic Risk Management Barriers.

AuthorGross, Amy

A recent survey of 152 CFOs at companies with $25 million or more in annual revenue found a critical gap between those who recognize the importance of strategic risk management and those who actually enjoy its advantages. Conducted on behalf of Liberty Mutual Insurance, the survey found that 68% of CFOs at midsize and large companies appreciate the key role strategic risk management plays in driving business performance, but 41% said they are not able to reap its full benefits.

Survey respondents identified six key obstacles:

Corporate culture. While creating a risk-taking culture should start at the top, 31% of respondents reported that senior leadership did not buy in to strategic risk-taking.

Competing business priorities. Almost two out of five respondents reported their company placed a higher priority on other business initiatives than strategic risk-taking.

Failure to analyze risk. Understanding best- and worst-case scenarios gives leadership the confidence to take strategic risks, but only 48% of respondents reported regularly developing such analysis.

Underutilizing insurance programs. While 68% of respondents reported insurance played a key role in reducing earnings volatility and boosting company value, only 42% of companies reported using insurance programs to manage the majority of their organizational risk.

Rapidly changing landscapes. From new technology to macroeconomics, 34% of participating leadership reported that keeping abreast of new trends was a considerable challenge, sometimes forcing them to reactively recognize and manage emerging risks.

Lack of clear risk management responsibility. Only 56% of respondents said their companies had a designated risk manager responsible for identifying, prioritizing, managing and mitigating the exposures their organization faces. Survey results also pointed to four important ways risk managers may be able to break through these barriers to strategically manage risk.

First, build a risk-aware culture that encourages smart risk-taking. Clearly, the two leading obstacles--risk awareness not being emphasized as part of the corporate culture, and a higher priority being placed on other business initiatives--are co-dependent. If your corporate culture does not support risk-taking, then risk-taking is likely to consistently be a lower priority, and vice-versa.

Overcoming these requires risk managers to help transform the company culture to one that focuses on decisions that create...

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