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Significant gulf remains between risk manager, top executives: Analysis


While a growing number of risk managers are embracing broader strategic responsibilities, there remains a substantial gulf in perception between risk managers and senior corporate executives as to risk management’s core function, says a survey published Monday by New York-based Marsh Inc. and the New York-based Risk & Insurance Management Society Inc.

Results of the “2012 Excellence in Risk Management” study revealed that C-suite executives believe their risk management departments should take a more active role in their companies’ short- and long-term strategic planning.

Risk managers, meanwhile, believe their department’s focus should be more defensive in nature, integrating themselves more deeply in their company’s day-to-day operations and developing more detailed, data-based risk analyses, the survey indicated.

“The gap that we’re seeing is more about what’s actually delivered by risk management and what the C-suite perceives ought to be delivered,” said Brian Elowe, a managing director in Marsh’s global risk management division in Boston. “The C-suite is really honed in on getting more strategic thinking out of their risk managers.”

The survey also indicated a distinct and widening difference in the two groups’ views of the year-to-year evolution of corporate expectations for risk managers. In 2012, 85% of risk managers surveyed said their department’s responsibilities had increased in the last three years, while just 71% of senior executives said they felt their risk managers were taking on more work. Compared with 2011, the divide between the groups grew by 9 percentage points, according to the survey.

“From the results, we’re finding that senior leaders don’t often explicitly tell their risk managers that they’d like to see more focus on strategic planning,” Mr. Elowe said. “They just expect that it will happen.”

Another significant point of discord between risk managers and C-level executives revealed in the survey was the extent to which the two groups value total-cost-of-risk measurements. More than two-thirds of risk managers said they rely on TCOR calculations—largely to measure past performance—but only 51% of senior executives surveyed were aware that their companies were using them.

To close that value gap, Mr. Elowe said, risk managers should explore applying TCOR metrics to forward-looking analyses, particularly those forecasts that can address curbing volatility in their company’s risk costs.

“Only 10% of the firms we surveyed assess the volatility of their TCOR measurements, and that’s where you really get to what risk management can do to help an organization,” Mr. Elowe said. “If you understand the volatility that your TCOR has, then you can start to build risk finance mechanisms and other things to support the firm’s strategic goals.”

Though some divides persist, risk managers and senior executives are not completely out of step, the survey indicated. Similar percentages of the two groups identified intimate knowledge of the company’s business model and industry, strategic view of risk and risk management, and a broad-based operational perspective, as the abilities and knowledge that are most crucial to effective risk management.

“Interestingly, in the past there had been a sort of skill gap identified by senior executives as to risk management’s capability of involving itself in strategic planning,” Mr. Elowe said. “We’re finding now that there’s a lot less concern on the part of the C-suite that the capabilities aren’t there. It’s more of an overall anxiousness now to accelerate that movement.”

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