A COVID-19 effect: ERM’s perceived value grows

Four years ago, a global report on enterprise risk management (ERM) showed that business leaders saw a continuing increase in the number and type of risks they faced. Yet, some organisations viewed ERM as a bureaucratic initiative, or one that yielded little value.

The thinking about ERM's importance has changed, and so has the view on the number and scope of risks facing businesses today. COVID-19 is a key contributor to the shift.

The 2021 version of that survey of global finance and risk leaders, released jointly by the Association of International Certified Professional Accountants and the ERM Initiative at North Carolina State University, shows that concern about risk volume and complexity continues to rise, but perception of ERM's value is rising, too.

And that thinking could help organisations better manage risk in the future.

In 2017, about 1 in 3 respondents said ERM was perceived as unneeded bureaucracy, including 33% of respondents in Europe and 47% of respondents in Africa and the Middle East. In 2021, that overall percentage is now about 25%, including 24% in Africa and the Middle East and 23% in Europe.

"Many business leaders who previously saw little value in investing in some kind of risk management process or spending time engaging in regular, robust risk-focused conversations with their key leaders are now realising the need to rethink how they approach risk management and increase the resiliency of their organisation to continual risks that will emerge," the 2021 report says.

The data shows that some regions more than others have lingering concerns about COVID-19's effect on their business model long term.

Respondents in the survey include many in finance roles, such as CFOs, finance directors, and controllers.

Mark Beasley, CPA, the director of the ERM Initiative and a professor at NC State, said that organisations today are worried about what their business models will be going forward and how they can merge risk management activities with strategic ones.

"They're particularly struggling with connecting their risk thinking to their strategy thinking," Beasley said. "They're trying how to figure out how to embed their risk and strategy together."

While COVID-19's effects continue to be felt on business, the survey shows that organisations outside the US have more pandemic-related concerns moving forward. For example, here's the percentage breakdown by region to the question "To what extent has COVID-19 changed the nature and type of your organisation's top risks since the prior year?"

• US: 45% said "mostly" or "extensively"
• Europe and the UK: 63%
• Asia and Australasia: 66%
• Africa and the Middle East: 74%

Vaccines have been more readily available in the US than in many other countries, and historic federal stimulus may have also played a role in US respondents expressing less concern. But computer chip shortages, supply chain backups, and other risks affect all regions — hence a lack of overall comfort in any region about risk events.

Eighty per cent of respondents in Africa and the Middle East say the volume and complexity of risks has "mostly" or "extensively" increased over the past five years, and 72% in Asia and Australasia say the same. But the US and Europe aren't far behind in that sentiment: 62% of UK and Europe respondents agree, along with 66% from the US.

COVID-19 continues to hamper decision-making, the respondents said. While just 25% of US respondents agreed that ongoing uncertainty related to the pandemic was "mostly" or "extensively" delaying key decisions about business models or strategic initiatives, 39% in Europe and the UK said that was the case. The perception was even stronger in Asia and Australasia (53%) and Africa and the Middle East (65%).

"The impact of COVID-19 will be long-lasting," the report said. "The thought of returning to what once was viewed as 'normal' operations is no longer realistic."

— Neil Amato (Neil.Amato@aicpa-cima.com) is an FM magazine senior editor.