Finance Leaders Worried About Risky Business

Finance leaders are getting increasingly concerned about the high-risk environment they are operating in. According to a recent global report, more than two-thirds of finance leaders believe that the risks affecting their organizations are becoming more complex and challenging to manage. However, their approach to risk management is struggling to keep up.

The report, titled ‘2023 Global State of Risk Oversight: Managing the Rapidly Evolving Risk Landscape’, was released by the Association of International Certified Professional Accountants (AICPA) & CIMA and North Carolina State University’s Enterprise Risk Management (ERM) Initiative. It includes insights from a survey of 983 executives from around the world.

The findings reveal that 68% of respondents perceive a significant increase in the volume and complexity of risks over the past five years. However, only 31% describe their organization’s risk oversight practices as ‘mature’ or ‘robust’. This indicates a clear gap between the growing risks and the ability to effectively manage them.

The report also highlights that only about one-third of organizations have comprehensive ERM processes in place. Additionally, 18% of finance leaders stated that executives do not see the benefits of ERM outweighing the costs or consider other pressing needs as a priority.

Mark Beasley, the Alan T. Dickson Distinguished Professor of Accounting and director of the ERM Initiative at North Carolina State, emphasizes the challenges faced by organizations in today’s complex risk environment. He warns that relying on outdated risk management practices is a recipe for disaster.

The report further reveals that most executives do not believe their organization’s risk oversight provides a competitive advantage. Only 16% of respondents believe that their organization’s risk management process is giving them a competitive edge.

Interestingly, organizations are more likely to have a management-level risk committee rather than a designated chief risk officer. In Europe and the UK, 57% of respondents reported having a risk committee, while only 43% have a dedicated risk officer.

Moreover, the report highlights that only a small percentage of organizations include significant risk management incentives in their compensation plans. In Europe and the UK, it is 20%, and in the US, it is 14%. This suggests a lack of emphasis on risk management within organizations.

The report also points out that more than half of the respondents have experienced a major unexpected risk event in the past five years. This indicates a potential breakdown in the organization’s risk management processes.

Ash Noah, managing director of Management Accounting and ESG for AICPA & CIMA, emphasizes the importance of enterprise risk management as a strategic asset. He highlights that an effective ERM program not only preserves value but also generates opportunities and creates a competitive advantage.

In conclusion, finance leaders are increasingly worried about the high-risk environment they operate in. The report highlights the need for organizations to reassess their risk management practices and invest in robust ERM processes. By doing so, they can enhance their resilience and agility in navigating the complex and uncertain risk landscape.