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Risk strategy

3:55 PM | Posted by |
In our experience, risk strategy should be at the heart of
the organization. Risk should be a core consideration when
setting strategy, formulating business plans, managing
performance, and rewarding management success. Risk
appetite should be clearly articulated and reflect the
organization’s risk carrying capacity, business strategy, and
financial goals. Processes and procedures should be in place
to manage risk on an enterprise wide basis within defined
boundaries, without stifling day-to-day operations.
Survey respondents’ most commonly reported objective
for risk management is to control and limit risk events.
Among publicly traded survey respondents, 90 percent
indicated that shareholder value enhancement is also a risk
management objective.
Only 65 percent of companies indicated they have a risk
appetite statement that reflects tolerance, strategy and
financial goals, suggesting there may not be sufficient focus
on linkages to top down strategic objectives and metrics
across the industry. As might be expected because of their
resources, the largest organizations scored very well in
having formal risk appetite statements for each key risk
category, such as market, underwriting, credit, liquidity, and
operational risks.
Only three quarters of companies have a risk-specific
limit framework to guide the business’ compliance with
risk appetite. Where limit frameworks are in place,
this understandably has a high correlation with the
risk categories most typically reflected within appetite
statements. 25 percent of companies reported that risk
appetite metrics are not part of the business planning
process, while only 57 percent include some, highlighting
a significant disconnect between risk management and
strategic decision-making.