Companies that use risk management to accelerate performance and drive growth record higher profit margins than other firms, according to a new PricewaterhouseCoopers report.
In its Risk in Review 2015 report, PwC says many companies believe that a robust risk management strategy will slow them down and prevent them from responding effectively to growth opportunities. But the evidence suggests otherwise.
“Among the companies we surveyed, those that are growing most quickly are nearly twice as likely to report they are developing sophisticated and robust risk management tools and processes,” the report says.
PwC found that only 12% of responding companies are “true risk management leaders” — that is, they demonstrate the most developed, proactive, and strategically aligned approaches to risk management. Over the past three years, 55% of that group recorded increased profit margins, compared with only 43% of non-leaders, and 41% of leaders achieved an annual profit margin of more than 10%, compared with only 31% of non-leaders.
“Risks are increasing dramatically and executives are constantly faced with making decisions to protect their businesses, while also trying to improve their financial performance,” Dean Simone, leader of PwC’s U.S. Risk Assurance practice, said in a news release.
“By integrating risk management into the business life cycle, these two objectives can easily come together to work in unison,” he said. “Developing an effective strategy requires investment, but the payoff and competitive advantage can be enormous.”
The key to becoming a risk management leader, PwC says, is “a proactive approach that integrates risk management into the life cycle of the business, bringing a holistic, risk-enabled view to strategic decision-making.”
Of those organizations that take that approach, 46% reported spending more time calculating and preparing for risk than reacting to it, versus just 21% of non-risk management leaders. The tools they use include identification and forecasting of emerging risks, horizon scanning and developing early-warning indicators, and building organizational resilience to risk.
“New analytics systems make it significantly easier to bring disparate data together to create powerful insights,” PwC noted.
PwC surveyed 1,229 senior executives and board members for the study.