Deloitte Global survey explores risk as a value creator and shines spotlight on overconfidence
Boards and C-suite indicate risk plays an important role in value creation. 87 percent of survey respondents view risk as a value creator. Yet only 17 percent are actively harnessing risk to drive returns. Senior stakeholders want chief risk officers to spend significantly more time playing the strategist role.
NEW YORK, NY, USA, 23 May 2017 — A new Deloitte Global report released today, “Taking aim at value: Avoid overconfidence and look again at risk,” surveyed board members and the C-suite to better understand how they view their organizations’ capabilities in balancing risk and reward.
The report uncovered an abundance of confidence in risk awareness and capabilities. But are senior stakeholders overstating their organization’s risk prowess? The results of this survey show companies can use risk management to not only protect value, but as a competitive advantage to power performance. In fact, nearly nine in 10 survey respondents believe value creation should be a key focus of risk management, yet only one in five are taking the steps needed to implement the obvious improvements. And three out of five say their organizations are susceptible to the profound forces of innovation and disruption which the global business landscape faces today. This report explores these gaps and how organizations can use risk to create as well as protect value.
“Historically, risk management has been a reactive or check-the-box exercise,” said Sam Balaji, Deloitte Global Risk Advisory Leader. “Companies are beginning to elevate and closely link the risk conversations to business strategy and drive superior performance; senior executives are now becoming more proactive and deliberate in assessing risks and utilizing them to differentiate and create value in addition to protecting value.”
Elevating the CRO to a business partner
In order for organizations to build closer alignment between value creation and risk, the role of the Chief Risk Officer (CRO) should be elevated to increase synergy between boards, C-suite executives and CROs.
As the role of the CRO is increasingly seen as a business partner moving forward, 58 percent of respondents say their CROs should spend significantly more time performing the strategist role in which they participate in setting the strategic direction of the company and align risk management strategies accordingly.
“CEOs are realizing the importance of risk and reputation and are relying on the CRO to provide insight into most strategic decisions,” said Chuck Saia, CEO of Deloitte Risk and Financial Advisory. “I’ve seen how effective risk management can be when the right people are in the right roles, meeting on a regular basis to talk about strategic and emerging risk issues.”
Key themes revealed by the survey include:
- Companies need to build closer alignment between value creation and risk: Organizations whose risk management philosophies and programs focus on value creation cite a range of areas where their actions are delivering significant benefits. These areas include customer loyalty, increasing operational resilience, improving cost effectiveness, and identifying and exploiting new business opportunities.
- Companies need to do more to establish and optimize the role of the CRO: A majority of business leaders surveyed – 63 percent – state that the firms they represent have a full-time CRO, with an additional 24 percent stating they believe the role is being performed by another executive. However, research suggests that organizations may not be defining this critical role accurately, or benefiting from it fully.
- Companies must forge responses to their most strategic risks and opportunities: Companies say they are focusing on a wide array of both emerging and longstanding strategic and tactical risks – but are these the right issues? With only 17 percent of respondents citing cybersecurity and 9 percent viewing geopolitical issues in the top three risks to their business, it is crucial that organizations do not lose sight of these risks and opportunities at the perimeter.
In such a volatile and uncertain era, Deloitte Global believes that companies cannot afford overconfidence. “Business leaders should recalibrate and fortify their risk management programs to ensure strong alignment with business strategy, linking them to value creation and differentiation. Given the pace of change and these findings, it is clear that a healthy dose of self-reflection accompanied by concrete action is imperative to harness the power of risk management to achieve market leadership,” said Balaji.
About Taking aim at value: Avoid overconfidence and look again at risk
Forbes Insights, on behalf of Deloitte Touche Tohmatsu Limited, surveyed more than 300 C-level or board representatives excluding CROs across the Americas, EMEA and Asia/Pacific regions between November and December 2016. Key industries surveyed include Consumer & Industrial Products, Life Sciences & Health Care, Financial Services, Manufacturing, Energy & Resources and Technology, and Media & Telecommunications. The survey sampled a range of companies from USD$1 billion in revenue and up, including 23 percent over USD$20 billion. Interviews were conducted with three CEO/board level executives as well as a CRO to provide editorial perspective and interpretation of the survey findings.
Deloitte provides industry-leading audit, consulting, tax and advisory services to many of the world’s most admired brands, including 80 percent of the Fortune 500 and more than 6,000 private and middle market companies. Our people work across more than 20 industry sectors to deliver measurable and lasting results that help reinforce public trust in our capital markets, inspire clients to make their most challenging business decisions with confidence, and help lead the way toward a stronger economy and a healthy society.