Risk Management: Compliance or competitive advantage?

Over the past few years, risk management has become synonymous with risk mitigation rather than delivering its broader benefits. In 2007, a team from PwC set out to interview finance directors from across a range of commercial sectors about their approach to risk management and how effectively it is embedded into their overall strategy. The process was deeply revealing. We found that while the majority of companies had invested in strengthening their risk management process it is still viewed as a back-office function rather than an integral part of good decision making.

“Risk management is seen as a ‘necessary evil’ within our organisation and the group risk manager is still trying to sell the benefits" - survey respondent.

There can be no reward without some risk, but too much can jeopardise the business. Companies that continue to operate risk, business planning and performance management in silos are not only vulnerable to unforeseen or misjudged risks, but might also be missing valuable opportunities i.e. taking too little risk.

In our experience there are three areas which can help companies deliver a fuller risk management agenda:

• Aligning performance and risk, particularly articulating a meaningful risk strategy and appetite that ensures potential gains, threats and compliance are viewed collectively when making decisions.
• Broadening the focus of risk management and embedding and integrating the corporate risk appetite and risk strategy into the culture of the business.
• Ensuring any emerging change in the nature of risk is adequately identified, managed, communicated and measured throughout the business.