According to Jonathan Blackmore, Ernst & Young advisory risk partner for Europe, the Middle East, India and Africa has said in a recently released E&Y report, “…..many executives have no idea what the return on their risk investment is … if they say that their return is neutral, I tell them that I don’t think that’s good enough.”

That comment pretty much matches the inputs and comments that our staff receives whenever the topic of investment(s) in risk prevention or even risk mitigation implementation strategies are proposed.  And, with minimal basic or empirical research done in this area, most risk management consultants or in-house risk team leaders still have a challenge to convince upper management that investments in disaster preparedness activities should be properly and adequately funded in any fiscal year budget.

That effort may have received a boost of support now judging from the results claimed in a new report —“Turning Risks into Results:  How Leading Companies Use Risk Management to Fuel Better Performance” — recently announced by Ernst & Young.

The study found that the companies that ranked in the top 20% for investments in risk-focused personnel, processes and technology generated nearly three times the earnings before interest, taxes, depreciation and amortization (EBITDA) than the companies ranked in the bottom 20%.

Using a global survey (based on 576 interviews with companies a review of more than 2,750 analyst and company reports), the report assessed the maturity level of risk management practices and then determined a positive relationship between risk management maturity and financial performance.  The report also claims to have identified the leading risk management practices that differentiated the various maturity levels and organized them into specific risk components.  Given those claims and assumptions, the findings of the report go on to suggest that:

  1. The top-performing companies (from a risk maturity perspective) implemented on average twice as many of the key risk capabilities as those in the lowest-performing group,
  2. Companies in the top 20% of risk maturity generated three times the level of EBITDA as those in the bottom 20%,
  3. Financial performance is highly correlated with the level of integration and coordination across risk, control and compliance functions integrated into the culture of the organization and management teams.
  4. Effectively harnessing technology to support risk management is the greatest weakness or opportunity for most organizations.

Also according to the report, “…to turn risk into results, the companies in the top 20%, for example, talk about risk with external stakeholders. They perform stress tests to validate how much risk is tolerable. They put in place standardized assessment and reporting tools and incorporate risk issues into business planning. And they monitor risk and manage it with the help of technology.”

Good risk management goes beyond keeping the business out of trouble and protecting the brand, according to the E&Y report. It includes embedding risk management into performance management and optimizing risk management functions.

Click here to read the full E&Y report, and pass this information along to those business continuity, risk or crisis management and disaster preparedness team members in your organization.

For those smaller private sector companies, perhaps, introducing this content to their PS-Prep strategy planning teams would be a good idea as well.

Please let us know your thoughts and comments regarding this newly released report.

Photo courtesy of risk_measurement.presentermedia.com

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