Surfacing and Managing Emerging Risks, Especially When they Seem to Emerge All the Time? Sure Sounds Strategic…

By Steven Strickman, LSSMBB, and Gary Preysner, CPCU, ARM, LSSBB

This is the second post in a series where I bring you findings, questions and insights related to Enterprise Risk Management (ERM), derived from an extensive ERM survey conducted by the AICPA in conjunction with NC State University.? I highly recommend reviewing the findings, which are available in the “2023 The State of Risk Oversight: An Overview of Enterprise Risk Management Practices - 14th Edition” by AICPA and NC State University, found at https://erm.ncsu.edu/library/article/2023-risk-oversight-report-erm-ncstate-lp.

Let’s look at how Financial Services companies feel about the Strategic Value that Risk Management provides.

The key findings were as follows: Few Emerging Risk Insights and Low Impact on Decisions:

·???????? Only 11% of respondents felt that ERM provided enough competitive advantage.?

·???????? 57% felt that ERM didn’t track emerging strategic, market or industry risks effectively.?

The first point is especially surprising, as Enterprise Risk Management is, or should be, integral to both strategy development as well as goal attainment.? Yet only 1 in 9 respondents thought so!? Strategy must consider which risks present threats, and which present opportunities. And given that risks often morph into real issues that sabotage the company’s chances of reaching its strategic goals, it would behoove a company to be able to see them before that happened. Clearly, ERM needs to do better.

These findings raise several important questions regarding risk management, strategy, and the handling of risks.? What’s going on?

·???????? Do companies view ERM as merely as a defensive or “check the box” activity?

·???????? What kind of performance would companies need to see for ERM to be considered strategic / bestowing competitive advantage??

·???????? Has ERM “dropped the ball” in the recent past?

·???????? How do these companies define “Emerging Risks,” and how should ERM position itself more effectively to track those risks??

There is a real opportunity for ERM to become much more of a strategic asset.? But it must prioritize new and emerging risks, track them, and provide forward vision.?

This likely involves first providing some broad definitions around those risks and their relative importance and taking the lead in in monitoring and evaluating them.? As we all know, risks of this kind are emerging and evolving faster than ever, and this is an untapped opportunity for ERM to shine.

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