The Organizational Drag of Risk Management Must be Diminished

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Regulators and organizational leaders were largely unprepared for the 2008 financial crisis, but reacted strongly after it occurred. This has led to a situation in which risk management’s operational drag in most large firms has now become too big and has to be reduced. A 2014 paper by CEB shows data taken from its members that only 6% of time spent by audit departments on risk types is spent on strategic risks. While this category is responsible for 86% of the significant losses in market value over the last 10 years. And on the other hand, no less than 52% of time is spent on financial, legal and compliance issues, while such issues only account for 5% of all significant market value losses. The conclusion is that nowadays risk departments are looking for risks in all the wrong places. In reaction to market turmoil, companies have been increasing their governance and risk management budgets. But an excessive or even exclusive focus on risk prevention and formalized risk management p (...) Read more? Sign up for free

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