The first question most organizations seek to answer in risk management is, “What are our most critical risks?” Given that management’s answer to this question lays the foundation for formulating responses with appropriate capabilities for managing the risks, Protiviti and North Carolina State University’s ERM Initiative recently surveyed more than 200 business executives to obtain their views about what risks they believe are likely to affect their organization over the next 12 months.
This survey provides insights across different sizes of companies and across multiple industry groups as to what the key risks are for 2013 based on the input of the participating executives. The respondent group of over 200 board members and C-suite executives provided their perspectives about the potential impact of 20 specific risks across three dimensions:
Each respondent was asked to rate 20 individual risk issues using a 10-point scale, where a score of 1 reflects “No Impact at All” and a score of 10 reflects “Extensive Impact” to their organization over the next year. Also, the respondents were given an opportunity to identify other risks.
There were several notable findings in this study:
– The first risk relates to profitability constraints due to overall economic conditions that could limit growth opportunities. That the responding directors and executives rated this risk as high as they did suggests that many of them are finding organic growth at acceptable levels harder to achieve in the current business environment. By inference, we can surmise that most management teams prefer a business environment in which they are able to grow organically so they can hire and invest with confidence. In periods of decline or slow growth, it is harder to remain profitable and can even be dangerous for highly leveraged companies. It also bears noting that this rating from the survey participants is consistent with the economic megatrends we are currently experiencing in many countries.
– The second risk relates to concerns about the potential for regulatory changes and heightened regulatory scrutiny that will affect how products and services will be produced and delivered. This one is not a surprise as it is a factor is virtually every industry.
A number of other insights about the overall risk environment for 2013 can be gleaned from this report:
Rarely has there been a greater need for transparency into the nature and magnitude of risks undertaken in executing an organization’s corporate strategy than today. The above synopsis suggests that executives and boards of directors can benefit from a periodic enterprise risk assessment to best position their organizations for a proactive versus reactive response to emerging risks that potentially impact their ability to achieve profitability and funding objectives. To that end, the risk assessment should be integrated with the strategy setting and business planning processes.
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Jim DeLoach has over 35 years of experience and is a member of Protiviti’s Solutions Leadership Team. With a focus on helping organizations respond to government mandates, shareholder demands and a changing business environment in a cost-effective and sustainable manner, Jim assists companies in integrating risk and risk management with strategy setting and performance management. Jim has been appointed to the NACD Directorship 100 list from 2012 to 2016.