The Conference Board: integrating risk assessment and strategic planning.

Integrating risk assessment data into performance management adds significantly to strategic and operations planning, according to a Conference Board report released September 15, 2009. However, few companies have integrated their enterprise risk management (ERM) and performance management processes.

Ellen S. Hexter, author of the report, along with Daniel Sandy Bayer, president of Bayer Consulting, said, "This integration provides decision makers with a dynamic analytical framework for evaluating operational strategies, acquisitions and divestitures, and capital investments across business units, asset types, and risk profiles. The combination of ERM and performance management is very valuable for strategic and operating plans that have long-term business consequences. A risk-adjusted performance framework offers organizations the ability to explicitly link personal and performance objectives."

ERM and performance management are two complementary processes essential for managing an organization. Both disciplines support organizations' efforts in making decisions and meeting their goals: ERM by identifying and managing the risks that could affect business objectives, and performance management by identifying and measuring the drivers needed to achieve results.

Risk-adjusted performance metrics offer managers tools that strike the appropriate balance between meeting performance goals and achieving appropriate returns for the risks being taken. Applying risk-based performance management also may lead to incentives that are more aligned with an organization's long-term success.

Despite these benefits, integration of these processes in companies has not been universal. In a recent survey by The Conference Board of 97 senior executives, 57% of the responding organizations had both a formal ERM program and a performance management program. Of this group only 43% said that integrating the programs would be extremely or very valuable. When asked if their companies would increase their use of risk...