By Maximilian Clarke

Risk management is outgrowing its origins as a tactical, operational discipline focused on short-term damage control and becoming more tightly embedded with a longer-term strategy-setting process, new research suggests.

At a majority of firms in a recent Economist Intelligence Unit survey, the risk function now plays a formal role in strategy-setting and in evaluating new market investments. Most risk managers in the survey also say their organisation is effective at linking risk management with strategy.

There is a long way to go, however, before senior management fully take on board the analysis of long-term risks when charting the organisation's long-term strategy. Scenario planning, for example, is used widely in long-term risk analysis, but at few companies (no more than 20% in the survey) do such risk scenarios figure in long-term strategic planning. And risks tend to be considered over a shorter period of time than strategic objectives–a clear indication of misalignment.

“Business leaders need to be looking at the future from a different perspective — one that is informed by the current climate of uncertainty but also by accepting that, though the future is largely unpredictable, being prepared for at least some of the outcomes will always pay off," commented Iain Scott, editor of the report.

The long view: getting new perspective on strategic risk, a report published by the Economist Intelligence Unit and sponsored by ACCA and Willis, explores the current thinking of global business leaders around long-term risks and suggests how firms can better align strategy planning with risk management. The findings of the report are based on a global survey of nearly 500 executives, all with direct responsibility or influence over their firm’s risk management.

Key findings from the research include the following:

• Long-term risk management is climbing the executive agenda. At the most senior level of the organisation, discussions about long-term prospects and risks are becoming more frequent. Over one-third of respondents say that their board and senior management have increased the time they allocate to discussing long-term risk analysis.

• Long-term risk scenarios are yet to inform strategic planning. A large majority of companies are using scenario planning to identify and assess long-term risks, but few are embedding it into overall strategic-decision making. More than one-half of respondents agree that they should spend more time thinking about the risks they will face ten years from now.

• Strategy planning and risk analysis are often misaligned. Some companies are making long-term strategic plans without a proper consideration of the associated risks. For 58% of respondents, strategic objectives are considered over a period longer than three years, but only 44% report considering risks over more than three years.

• Short-term focus can be short-sighted. Respondents report that senior management’s disproportionate attention to immediate risks is the biggest barrier to companies taking a longer-term view of their risk exposure. Boards and senior management must move beyond this myopia so that immediate priorities do not over-shadow longer-term strategic planning and risk management.

Join us on
Follow @freshbusiness