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Special Feature R M The Changing Face of
ISK from Functionality to Capability ANAGEMENT
The 2008 recession has challenged and reset several prevailing corporate wisdoms: the eternal might of the developed world; the endless growth of emerging markets; the value that enterprises stitched together by contractual arrangements can create; the impact of command and control operating models; top down engagement practises with consumers, employees and other stakeholders only to name a few. As a consequence, the risk profile companies are faced with is changing at a velocity never seen before. Now couple this with the complexity of doing business and the interdependencies across organisational components, and it becomes clear that various risks have created unprecedented volatility of business performance.
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espite all that, risk management as a discipline has been playing catch-up. Instead of leading the charge and demonstrating confidence and resilience in an organisation’s ability to
master its risks, exploiting those risks to drive competitive advantage, and becoming the strategic decision making function that it needs to be, risk management is still mired in a purely functional focus. The proverbial ‘tanker’ is turning and, slowly but surely, gathering momentum and helping risk management to adapt and operate in a changing environment with evolving business models.
Risk Management as a functional focus – Past its ‘best before’ date? Corporate crises around the turn of the millennium led to a raft of regulatory measures aimed at strengthening corporate governance.
The regulators’ emphasis has been on both elements of risk managements – its identification and its management. Consequently, most organisations, especially those publicly listed, started reporting on risk management and set up risk management functions to enable this process. While this has certainly put risk management on the corporate map, it has predominantly had a functional focus aimed at demonstrating that companies are compliant with regulatory expectations. The “tick box” compliance regime had emerged.
The financial crisis and the ensuing recession, with its adverse downstream impact have caught companies by surprise. Tough economic times have left many organisations questioning why their risk management efforts have not protected them, or forewarned them against impending threats. The answer for many of them seems
to be that not enough is being done by risk management, that it is not adding value to the organisations or helping it to be more effective in responding to the major risks and uncertainty it faces.
The Undelivered Promise of Risk Management – A Diagnosis! While there is overwhelming consensus that understanding and managing risks effectively is a “sine qua non” for driving improved and sustainable business performance, its application and implementation has left much to be desired. Having surveyed and spoken to several stakeholders across companies in different sectors and geographies at Ernst & Young we came to the conclusion that the gap lies in the application and implementations of risk management practises.