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Tuesday, April 19, 2011

Economist Intelligence Unit - Risk Radar 2011

The Economist Intelligence Unit has recently published a survey on risk management preparedness for global businesses which reports some interesting findings.

Continue reading to see summary

The Survey
The Survey can be downloaded in full by following either of the links expressed here [ Fast Download Here or Economist Site ]

275 executives across the planet were interviewed over three key areas of risk management in their firms. The aim of the survey was to understand attitudes towards risk management as a practice and to see what is keeping risk managers awake at night.

While the Global Financial Crisis seems to be under a perpetual state of metamorphosis, risk managers appear to be positive about global growth (50% in US and 33% in Asia are positive) but they are still concerned that a Sovereign Debt Crisis may lead to renewed volatility and hamper the recovery. On the other end of the scale, high inflation may drive policy tightening which could flatten profit. Another 33% of the survey participants are actually worried about rising prices for commodities as an unwanted outcome of inflation from quantitative easing.

These varied results are to be expected as different firms are impacted by the same risks in alternate manners. This is even more evident when buyers and sellers are interviewed together because they have diametrically opposed threats.

RISK RADAR : Key Risks which concern management

The survey reviewed three key areas of risk management:
 [1] Economic, Regulator and Market Risks
 [2] Business and Strategic Risks
 [3] Political, Safety and Security Risks

The highest risk concern across the board has been attributed to "Currency Exposure" from various causes including flights to quality during periods of market volatility, the "long term sustainability of the euro" and "currency wars" that may occur if countries engage in trade protectionism.

The main report from the questionnaire has also been divided into three sections which allows a reader to quickly focus on specific areas they might be interested in, the three areas are:

» The risk radar - The key concerns for risk managers at present.
» Preparedness and appetite for risk
» Changing culture of risk management

Atypical Failures
The nice thing with these type of surveys is that some questions overlap in meaning and that can lead to interesting results or insight as it has done in this report.

44% of executives see risk helps avoid financial losses and in a positive way, 75% of all respondents believe the role of risk management will increase in their firms. All this aside, very few participants, only 36% for what it's worth, are looking to bring more risk resources into their businesses.

27% of survey responses see good risk management can increase the market share of their firm, 25% point to risk management as a key to corporate survival and then there are always those; which in this case is 22%, that use risk management as the primary means for meeting regulatory compliance.

Finally 27% of managers interviewed in the US do not want to take on more risk however 50% believe their businesses will grow globally either way. How growth is to be achieved without risk taking begs to be answered and if we assume that "risk vs return" are connected, it would surely follow that one can't exist without the other in place.

This survey is a great read, balanced, well presented and it will give you insight into how analysts of varied business are perceiving the practice of risk management and importantly, what is going to threaten their businesses in 2011.

The Survey can be downloaded here Fast Download Here or Economist Site ]

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