In recent years, about two-thirds of executives participating in the Global State of Enterprise Risk Oversight survey have consistently acknowledged a perceived increase in the volume and complexity of risk facing their companies over the previous five years, and about half have consistently reported that their companies have faced an operational surprise in that span.
Yet, once again this year, only about one-third in the annual report describe their companies’ risk oversight as mature or robust.
What are the barriers preventing an increase in enterprise risk management (ERM) activity in response to ever-increasing risk, and how can companies get started in rising above the barriers?
The responses from one region in the survey, conducted annually by North Carolina State University’s ERM Initiative and AICPA & CIMA since 2017, provide a possible path forward.
The 41 participating executives in the Africa and Middle East region cited “competing priorities” and “insufficient resources” as the top two barriers to effective ERM, in line with the cumulative responses of the other three regions in the survey (Europe and UK; the US; and Asia and Australasia).
Yet, based on the survey results, the Africa and Middle East region still managed more of a collective commitment to risk management and reaped benefits as a result.
More than half (51%) of Africa and Middle East executives agree “mostly” or “extensively” that risk management measures provide their companies with a unique competitive advantage, versus a much smaller percentage in the other regions (14%). In addition, just 41% in Africa and the Middle East reported an operational surprise in the past five years, below the 49% rate reported by the other three regions.
Several survey trends may speak to the differences:
- In Africa and the Middle East, 61% have hired a chief risk officer or equivalent to head up risk management. In the other three regions, 46% have done the same. In addition, 49% in Africa and the Middle East “mostly” or “extensively” tie risk management activities explicitly to management compensation, compared with 18% of the other regions.
- In Africa and the Middle East, 41% of senior executives and key business leaders have received formal training and guidance on risk management in the past two years, compared with 24% in the other regions.
- About two-thirds in Africa and the Middle East said that risk information generated by their companies’ ERM process is formally discussed when the board discusses strategic plans, versus about one-third in the other regions.
“When business leaders consider whether there is a need to improve their risk management processes, they may be overwhelmed about next steps they should take,” the report’s authors wrote. They suggested that companies move forward with ERM initiatives by taking these next steps:
- Engage in conversations about risk management;
- Identify opportunities to integrate with strategy;
- Pinpoint enterprise-level leaders;
- Enhance fundamental risk management infrastructure; and
- Communicate with the board about emerging risks.
The report includes a number of discussion topics for management and boards to engage in conversations about how their organisation’s risk management processes might be enhanced for greater strategic value.
“Risk management will not become easier over time. Given the rapid speed of change in the global business environment, complex risk issues will continue to emerge at rapid-fire pace,” the authors wrote in summary. “Now is the time for many organisations to give their approach to risk governance an honest assessment.”
— To comment on this article or to suggest an idea for another article, contact Bryan Strickland at Bryan.Strickland@aicpa-cima.com.
