Risk management is at the top of the global executive agenda as companies face an array of threats that grow more complex every day. The risks are vast and ever-present and those companies that fail to manage them well imperil their future.
Falling behind the risk
According to a recent review of ENR data collected by the Economist Intelligence Unit for KPMG, and recently conveyed in a report entitled, No paper chase: Transforming risk management at energy and natural resources companies, the management of the risks the ENR companies are facing is not advancing as fast as the threats faced.
Indeed, less than two thirds of respondents said that they “often” or “constantly” build risk management into their strategic planning decisions; only 14 percent of respondents said they had a formal risk appetite statement; and more than one third said that their risk management function relies on a self-assessment from the business units, rather than a centralized risk function.
Understanding the challenges
In this report, more than two third (69%) of ENR respondents see geopolitical instability as the greatest threat to industry, 46% cited commodities price volatility, while more than half (53%) also cited regulatory pressure as a major threat. When it came to risk management, ENR respondents noted less confidence in the Boards than other industry sectors surveyed in the research. Just over a third (37%) of respondents suggested that their Boards had a strong enough understanding of the issues to communicate risks. And, only 42 percent thought that their Boards fully appreciated the importance of the risks they were facing.
Gaining value from investments
One of the bigger challenges slowing investment into risk management functions and capabilities within the ENR industry comes down to a lack of consensus between the Board and executives about the goals of their program and the return on their investments. According to the data, almost a quarter of the organizations have no means of measuring the return on their investment into risk management at all.
Integrating risk management into everyday business thinking
The challenge for ENR companies is how to get all of these risk management initiatives integrated in a common framework to ensure the Board and senior management are kept informed about top risks and mitigating plans in order to strengthen decision-making. Today’s complex environment requires the CEO to take the lead by integrating the process of risk management into everyday business thinking. By ensuring that risk management is everybody’s business, and not only that of a single department, companies will have a chance to rise to the challenge.