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Risk and Controls Evolution – KPMG Survey

KPMG Media Release
25 March 2008

Risk and Controls Evolution – KPMG International survey

• Risk management and control functions take a more forward-looking role but are hindered by a lack of full understanding of risk issues, says KPMG.
The way a company manages its risk could become the fourth key platform on which a company’s performance is determined, suggests KPMG International.

However, according to research released today by the professional services organisation, progress towards this is can be slow, with companies themselves sceptical about making rapid strides forward in the short-term.

The survey reveals that companies do now accept that the internal functions which manage and control risk can assume a more strategic focus – and can have a real impact on company performance.

Unfortunately, the companies surveyed are split roughly 50/50 on whether this is achievable within the next three years. One of the most common barriers to this appears to be a lack of understanding around risk issues – or the lack of a more risk-aware culture within the business.

Commenting on the results, Jeremy Bendall , Head of KPMG Enterprise Risk Management services for Asia Pacific, said: “With ongoing pressure from external regulators and their own senior management, the time has come for internal risk and control teams to make the move from simply keeping score, complying with regulations and limiting losses, to actually generating value.
“A company is often judged by how well it performs on three key platforms – people, processes and technology. Perhaps now is the moment for risk to become the fourth of those platforms.”

“Senior management increasing its focus on risk and controls was deemed to be the single biggest factor driving changes in risk management. This was closely followed by geographic and market expansion and the emergence of new risks.

“These are areas in which executives with responsibility for the risk management process are ideally placed to assist in making proactive, substantive business decisions. Companies do now appreciate the potential which exists for an effective enterprise risk management process to create actual business value.

“Now comes the real challenge however – realising that potential,” Jeremy Bendalll said.

Despite recent improvements, the survey of 435 senior executives – undertaken by the Economist Intelligence Unit on behalf of KPMG International – shows that limited risk awareness still remains the biggest barrier to effective risk and controls. At 22 percent it was the single most popular response, followed by a shortage of resources and poor understanding of risk issues in the wider business; both at 17 percent.

Respondents concurred that there is a pressing need to raise the profile of risk management within the business. Many interviewees stressed the need for a risk culture to permeate an entire organisation. Although difficult to define and measure, the implication seems to be that a consideration of risk needs to be part of every business decision. Looking forward, they suggest that the consideration of risk is now moving beyond the traditional homeland of quantifiable measures towards a more qualitative assessment, considering whether a company may be selling its products properly for example – or whether it is facing legal or regulatory risks.

“These are changing times for anyone involved in managing corporate risk,” said Jeremy Bendall. “Risk management is no longer seen as reactive and defensive but is becoming proactive and creative.

“No longer are organisations constrained by a mindset that dictates: if it can’t be measured, then it doesn’t exist. No longer do risks and controls sit solely with finance.
“This latest incarnation will be of a risk management process that is focused on qualitative measures as well as key quantitative measures. This leads to a better understanding of the true impact of non-financial risk on areas such as reputation, brand equity and corporate social responsibility.”

“In the future, the previous default setting of quantitative analysis and control will be superseded by a model that includes a qualitative side where informed value judgments are being made regarding issues such as the quality of decision making, human capital risk, quality of collaboration and stakeholder engagement.“This survey suggests that a full transfer to this new way of working will not happen overnight. The crucial thing however, is that companies appreciate the need for a shift and are starting to move their feet in the right direction,” said Jeremy Bendall.

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