In the last issue of Aon One (Q309), our cover story cited a broad commitment to risk management planning as key to successfully operating in both good and bad economic times (one.aon.com/focusing-big-picture). Based on our 2010 Global Enterprise Risk Management Survey, an increasing number of companies are doing exactly that, employing mature enterprise risk management (ERM) practices to enhance organizational value and resiliency.
Aon's ERM survey, conducted in the third quarter of 2009, the research shows a significant increase in commitment to ERM practices when compared to a similar survey from 2007—a clear indication that companies are integrating risk management processes beyond senior management as well as developing more transparent relationships with stakeholders such as shareholders, customers, vendors and employees. The survey also shows how leading organizations are able to move beyond a reactionary approach to managing risks.
"When risk managers truly understand their risks and can use available information to better educate and prepare the organization for adversities and opportunities, then they can make decisions that are more in line with the organization's strategic and operation plans, as well as its external environment," says Laura Taylor, global leader of enterprise risk management for Aon Global Risk Consulting.
For the most recent survey, Aon updated its ERM maturity model to reflect new approaches to ERM. Two-thirds of the 2010 respondents identify themselves as having progressed beyond basic ERM practices compared with 38 percent of those two years prior. Additionally, the number of respondents who see themselves with advanced ERM programs has more than doubled during the same period. The finesse needed to advance through these stages involves balancing corporate vision, stakeholder commitment and risk philosophy.
Successful Enterprise Risk Management
As with the previous ERM survey, the latest report includes case studies that illustrate the personal challenges and achievements of six Aon clients. Collectively, the case study interviews and survey data reveal the nine hallmarks of a successful ERM practitioner. These hallmarks are common among all practitioners, regardless of size, industry, sector or region and can serve as benchmarks for organizations progressing along the ERM maturity model.
Hallmark No. 1: Board-level commitment to ERM as a critical framework for successful decision making and for driving value. Survey respondents with advanced ERM programs report strong board buy-in of their risk management efforts. Of those in the advanced stages of ERM activity, 100 percent report their boards either significantly or entirely understand and support risk management activities. Additionally, advanced practitioners are more likely to use risk-based information for board-level functions like strategic planning or mergers and acquisitions, and to use risk management to protect and enhance shareholder value.
Hallmark No. 2: A dedicated risk executive in a senior-level position who drives and facilitates the ERM process. A successful ERM program requires a "de facto" chief risk officer who has the support of the board, understands the strategic direction of the organization, has a broad view of the organization's risks and opportunities, and can translate the ERM program into a meaningful context at every level of the organization. The majority of respondents place this function with their chief financial officers.
Hallmark No. 3: An ERM culture that encourages full engagement and accountability at all levels of the organization. Leveraging risk management to meet corporate objectives and integrating ERM into decision-making processes are important indicators that risk management is being embedded in the culture of an organization, yet survey respondents are finding this to be a challenge. (See the graph "Barriers to the Implementation of ERM" to understand the reasons.)
