Risk management is outgrowing its origins as a tactical, operational discipline and becoming more tightly embedded with the strategy-setting process. At a majority of firms in a recent Economist Intelligence Unit survey, the risk function now plays a formal role in strategy-setting and in evaluating new market investments. Most risk managers in the survey also say their organisation is effective at linking risk management with strategy.
There is a long way to go, however, before senior management fully take on board the analysis of long-term risks when charting the organisation's long-term strategy. Scenario planning, for example, is used widely in long-term risk analysis, but at few companies (no more than 20% in the survey) do such risk scenarios figure in long-term strategic planning. And risks tend to be considered over a shorter period of time than strategic objectives—a clear indication of misalignment.
The long view: getting new perspective on strategic risk, a report published by the Economist Intelligence Unit and sponsored by ACCA and Willis, explores the current thinking of global business leaders around long-term risks and suggests how firms can better align strategy planning with risk management. The findings of the report are based on a global survey of nearly 500 executives, all with direct responsibility or influence over their firm’s risk management.
Key findings from the research include the following:
- Long-term risk management is climbing the executive agenda. At the most senior level of the organisation, discussions about long-term prospects and risks are becoming more frequent. Over one-third of respondents say that their board and senior management have increased the time they allocate to discussing long-term risk analysis.
- Long-term risk scenarios are yet to inform strategic planning. A large majority of companies are using scenario planning to identify and assess long-term risks, but few are embedding it into overall strategic-decision making. More than one-half of respondents agree that they should spend more time thinking about the risks they will face ten years from now.
- Strategy planning and risk analysis are often misaligned. Some companies are making long-term strategic plans without a proper consideration of the associated risks. For 58% of respondents, strategic objectives are considered over a period longer than three years, but only 44% report considering risks over more than three years.
- Short-term focus can be short-sighted. Respondents report that senior management’s disproportionate attention to immediate risks is the biggest barrier to companies taking a longer-term view of their risk exposure. Boards and senior management must move beyond this myopia so that immediate priorities do not over-shadow longer-term strategic planning and risk management.
Iain Scott, the editor of the report, said: “Business leaders need to be looking at the future from a different perspective – one that is informed by the current climate of uncertainty but also by accepting that, though the future is largely unpredictable, being prepared for at least some of the outcomes will always pay off."
The long view: getting new perspective on strategic risk
is available free to download from:
http://www.businessresearch.eiu.com/long-view.html
Press enquiries:
Joanne McKenna, Press Liaison, +44 (0)20 7576 8188, joannemckenna@eiu.com
Iain Scott, Managing Editor, +44 (0)20 7576 8251, iainscott@eiu.com
About the research
In October 2011 we conducted an online survey of almost 500 executives from around the world. The survey included companies from a wide range of different sectors. All respondents have direct responsibility for, or influence over, their firm’s risk management, either as CEO or board-level executive (42%), as chief risk officer or other dedicated risk executive (39%), or as a non-executive director (19%). To supplement the survey results, the Economist Intelligence Unit conducted a programme of qualitative research that included a series of in-depth interviews with industry experts.
About the Economist Intelligence Unit
The Economist Intelligence Unit (EIU) is the world's leading resource for economic and business research, forecasting and analysis. It provides accurate and impartial intelligence for companies, government agencies, financial institutions and academic organisations around the globe, inspiring business leaders to act with confidence since 1946. EIU products include its flagship Country Reports service, providing political and economic analysis for 195 countries, and a portfolio of subscription-based data and forecasting services. The company also undertakes bespoke research and analysis projects on individual markets and business sectors. More information is available at www.eiu.com or follow us on www.twitter.com/theeiu
The EIU is headquartered in London, UK, with offices in more than 40 cities and a network of some 650 country experts and analysts worldwide. It operates independently as the business-to-business arm of The Economist Group, the leading source of analysis on international business and world affairs.
