A pioneering study to increase the risk instead of company Business Performance Management
The Risk and Insurance Management Society (RIMS) and LogicManager released RIMS State of ERM Report 2008. The report–the first truly in-depth study on ERM practices — unequivocally substantiates the value of ERM for organizations of all types. It also indicates that companies that have greater risk management and ERM maturity levels enjoy higher credit ratings. RIMS State of ERM Report 2008 is available at www.RIMS.org/RMM.
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The study is based on data collected from 564 corporate risk practitioners who assessed their risk management strategy by comparing their organizations’ activities against 68 guidelines presented in RIMS Risk Maturity Model for ERM© (RMM). The study was conducted from December 2006 to January 2008 and the findings evaluated by members of RIMS ERM Development Committee who are risk management experts and thought leaders in the ERM arena. In addition to key findings, RIMS State of ERM Report 2008 uniquely outlines priorities for best practice criteria that organizations may use to improve ERM competency.
Report Key Findings
* Organizations that have embraced ERM have realized a concrete advantage in their risk management competency. The study found that 93% of organizations with formalized ERM programs in place make better risk-informed decisions — a recognized competitive advantage over those that do not have an ERM program.
* Organizations that report they have an ERM program in place still fall significantly short of achieving managed or better risk maturity. The study demonstrates that, based on the ERM guidelines presented in RIMS Risk Maturity Model for ERM, only 4% of these companies have achieved a managed or better level of risk management competency in all risk competencies. This suggests that organizations may have a false sense about all that is required for an effective risk management program.
* Data from the study verifies that formalized infrastructures in well-managed ERM programs embody the 68 best practice guidelines for efficient and effective risk management programs as presented in RIMS Risk Maturity Model for ERM.
* The study links ERM to better business performance. There is a distinct correlation between companies that score higher on RIMS Risk Maturity Assessment and companies that possess higher credit ratings. The same is true of low scoring companies that, typically, possess lower credit ratings. Hence, better managed companies in terms of ERM practices benefit from better business performance.
“In order for organizations to capitalize on the strategic and tactical value creation enabled by ERM, management — from the board room to the front line-must play an active role in the risk management process,” says Carol A. Fox, ARM, senior director of risk management at Convergys Corporation and chair of RIMS ERM Development Committee whose members, risk practitioners, contributed to the report. “This report identifies fundamental requirements for management to build and maintain a resilient and sustainable organization.”
“ERM truly is a lead indicator of performance. The data collected for this study across all industries pre-dates Standard & Poor’s recent announcement to expand its ERM requirement to all industries,” says Steven Minsky, CEO of LogicManager, author and producer of the report. “This study presents empirical evidence that validates the soundness of using ERM to evaluate an organization’s future performance and its ability to meet its credit obligations.”
“For organizations that want to further develop their current ERM program, or learn how to implement one, RIMS recommends that an important first step is to understand where they stand. Using RIMS Risk Maturity Model for ERM and the free online Risk Maturity Assessment allows companies to assess their current practices against these validated risk competencies and create a roadmap to achieve whatever level they desire,” says Fox.
