Guest Post by James Kline (first posted on CERM ® RISK INSIGHTS – reposted here with permission)
In earlier articles, I discussed two risk-oriented surveys. One conducted at the World Economic Forum was of the world movers and shakers. The second was conducted by North Carolina State University. It reflected the responses of CEOs and senior managers. This article discusses the results of the Aon “Risk Management Survey” of risk managers.
Aon Survey and Comparison with North Carolina State Survey
Aon is an insurance company. It conducts a bi-annual risk management survey. The 2019 survey covers the responses of 2,600 risk managers from 33 industries in 60 different countries. The respondents work in small, medium and large organizations. Sixty-six percent are privately-owned companies, twenty-one percent are publicly owned, and thirteen percent are government or not-for-profit organizations.
The responses are greater than those of the North Carolina State survey which is based on 445 responses. In each survey, the risk categorization is different. Thus, it makes it difficult for a one on one comparison. However, some board conclusions are possible.
The Aon survey determined that only 24% of the respondents said they quantify their top risks. Only twenty percent use risk modeling. The North Carolina State responses indicate that twenty-three percent describe their risk management process as mature or robust, while thirty-one percent indicate they have complete ERM processes in place.
Comparatively, there is broad agreement between the two surveys. A little over a third of the respondents have a complete ERM process, while less than twenty-three percent have a mature risk management process.
The Aon survey has been conducted for twelve years. The 2019 survey provides a comparison between the top fifteen risks for 2017 and 2019.
Comparison Shift in Risk Emphasis
As noted above, the list of risks differs between the surveys. In the Aon survey, unlike the World Economic Forum or North Carolina State University surveys, environmental risks are not listed among the top fifteen. Table 1 shows the top fifteen risks for 2017 and 2019.
|Top Fifteen Risks||2019||2017|
|Economic Slowdown/slow recovery||1||2|
|Damage to reputation||2||1|
|Accelerated rates of change in market factors||3||38|
|Commodity price risk||7||11|
|Cash flow/liquidity risk||8||12|
|Failure to innovate/meet customer needs||9||6|
|Failure to attract or retain top talent||11||7|
|Distribution or supply chain failure||12||19|
|Capital availability/credit risk||13||21|
The largest shift among the top fifteen is Accelerated rates of change in market factors. It moved from 38 in the 2017 survey to 3rd in 2019. This reflects the combined effects of broad based political, economic and technological change.
A second major change is Distribution or supply chain failure. “Economic slowdown/slow recovery and accelerated rates of changes in market factors are forcing businesses to adjust their supply chains rapidly so they can cope with both market uncertainty and competitive pressures.” Lean supply chains have amplified the potential for disruption and failure.
Some common risks that appear in all the surveys are Damage to reputation, Increasing competition, Cyber-attacks/data breaches and Disruptive technologies.
Three of the risks are considered underrate. These are: Failure to attract or retain top talent, Regulatory/legislative changes and Political risk/uncertainty. Attracting and retaining highly talent is increasingly important. Organizations needing to embrace new and disruptive technologies require digital-ready talent which is scarce and in great demand. The report states: “In today’s volatile and complex business environment, having the right talent proves to be more crucial than ever.”
The survey results reflect the relaxing of the regulatory environment. As a result, both the regulatory and political uncertainty risks have moved down from 2017. But, because of the volatility of the environment, these risks can move upward in rank at any time. A trade war between China and the United States, for instance, could adversely impact both the regulatory and political risks environment. Thus, shifting the rankings.
Underrated Risk Not Included in Top Fifteen
Environmental issues are not among the top fifteen. This is something that the Aon staff felt was unfortunate. They make a point of stressing the importance of climate change.
“As climate change intensifies, the economic impact increases accordingly. Aon says total economic losses from hurricanes in 2017 were nearly five times the average of the preceding 16 years while losses from other severe storms registered 60 percent higher.
Therefore, it is important for risk managers to gain a better understanding of the impact of climate change and the dynamics of extreme weather events. In this way, they can anticipate and effectively manage their exposures.”
The emphasis on climate change risks reflects the fact that Aon is an insurance company that ends up paying out claims for damages. As the above shows, the costs to insurance companies have increased over the past few years. Consequently, they are sensitive to environmental-related risks.
The Aon “Risk Management Survey” adds additional insight into the risk concerns. The respondents are risk managers. They recognize that there are multiple risks organizations face. Their top concerns are Economic downturns and Damage to their company’s reputation. Unlike the World Economic Forum and North Carolina State surveys environmental-related risks are not among the top fifteen risks. This differs from Aon’s view, which would place climate change-related risks among the top fifteen. However, the Aon summary of the environment which risk managers face and its impact on organizations is quite succinct and on the mark.
In its forward to the survey Greg Case, Aon President and CEO, states:
“The complexity of the situation organizations face today is substantial. These challenges are likely to grow in intensity over the next few years as new risks become even more prominent, including the implications of an aging workforce, the impact of climate change, the growing prevalence of cyber-attacks and the emergence of ever more disruptive technologies.
The most effective organizations will approach these challenges holistically, involving leaders throughout the organization to provide their unique viewpoint and expertise and then applying sector-specific data & predictive analytics to support the decisions they make. This is an opportunity for more risk managers to lead an evolution toward truly addressing risk at the enterprise level.”
The three surveys show that while there are differences in the ranking of risks and types of risks identified, there is recognition that organizations face multiple risks. However, the small number of organizations that have a comprehensive enterprise-wide risk management program indicates that there is a disconnect between recognition and implementation. Consequently, until upper-level management decides more urgency is required to implement a proactive enterprise-wide approach to risk management, the number of organizations with a comprehensive risk management policy will remain small.
James J. Kline is a Senior Member of ASQ, a Six Sigma Green Belt, a Manager of Quality/Organizational Excellence and a Certified Enterprise Risk Manager. He has work for federal, state and local governments. He has over ten year’s supervisory and managerial experience in both the public and private sectors. He has consulted on economic, quality and workforce development issues for state and local governments. He has authored numerous articles on quality in government and risk analysis. He is the principle of JK Consulting. firstname.lastname@example.org
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