Risk management discipline in the spotlight

Reducing company's focus on risk management during a downturn is a false

economy. Although businesses feel compelled to 'do more with less', the economic

climate can in fact increase or intensify the level of risk companies are

exposed to, as it can affect anything from levels of capital expenditure to

staffing requirements. This is according to a recent report titled, 'Managing

risk during an economic downturn', from global advisory and consulting firm

Ovum.

Ovum's study reveals that companies are now starting to rethink their

approach to risk management and are placing a more strategic focus on its

implementation and deployment to drive it from a siloed approach to an

enterprise approach. As a result, risk management promises to become an even

more central part of planning, managing and running a business.

“The financial crisis has provided a very high profile example of how poor

risk management practices can severely impact not only a business but also a

whole industry sector,” said Helena Schwenk, Senior Analyst, Ovum and author of

the report. “While the banking system recovers and readjusts from the crisis and

moves to a more tightly controlled and regulated risk management environment,

other industry sectors are advised to take heed of the risk management lessons

learned from this painful episode,” she added.

Much of the failure around past and current risk management practices does

not point to a failure of risk management as such, but to a lack of

understanding about the discipline and how it should be applied correctly. The

financial crisis has highlighted the dangers of managing various risk types in

isolated silos, each with its own set of tools, applications and models. Hence

much of the failure around risk management lies in the inability to have a more

holistic view of risk management and understanding the inter-dependencies of

risk across different lines of business.

“The current economic crisis has also underscored the need to treat risk

management not just as a strategic ideal, but also as an operational

imperative,” said Schwenk. “Businesses need to make sure that risk management

trickles down from high-level business strategy, objectives and goals to the

operational coalfaces of the organization so that all employees, at all levels,

gain a company-wide perspective on risk,” Schwenk concluded.