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Value of Credit Management: Risk Management Increasingly Important, but Companies Struggling to Convey Its Value

A report sponsored by KPMG International found that risk management has become increasingly important to companies, even though organizations have struggled to communicate its value to stakeholders.

The survey, titled “Expectations of Risk Management Outpacing Capabilities—It’s Time for Action” was conducted for KPMG by the Economist Intelligence Unit (EIU) of The Economist.

It asked more than 1,000 C-level executives worldwide about their perception of the risk management function and how effectively they’ve promoted a risk-minded philosophy throughout the organization.  Forty-seven percent of respondents said that they considered risk management essential for adding value to their overall business, an attitude that has presumably only grown over the last few years, as the survey also found that risk management investment has recently ballooned as a percentage of revenues. Furthermore, 66% of participants expected their investment in risk management to increase in the next three years.

Driving the increased focus on risk management is a unique collision of challenges that has caught many companies unprepared, including growing interest in riskier emerging markets, increasingly complex regulatory environments and greater competition. “These challenges are building faster than most organizations’ abilities to manage with agility, knowledge and a resilient risk-aware culture,” said the report’s executive summary. “Thus, the gap is widening and we are at a turning point, warranting an even stronger capability to master and optimize risk.”

Even though the demand for risk management expertise has never been higher, the report found that companies need to improve how they measure risk management’s return on investment (ROI) and how they convey its processes, value and effectiveness to key stakeholders. Thirty percent of respondents said that their company only measures risk management by reviewing past results or risk events to make an assessment, while 28% answered that their companies had no mechanism to measure the function’s ROI at all.

Complicating the desire among company stakeholders for more sophisticated, cutting edge risk management programs is the fact that most organizations aren’t very proficient at incentivizing their employees to make risk-based decisions. The KPMG survey found that 43% of respondent companies either have a weak, informal link between risk management and compensation, or no link between those two whatsoever. “A way to improve alignment is to provide employees from top to bottom with incentives that will motivate them to weigh skillfully the risk and opportunity in every business decision they make,” the report recommended.

A copy of the executive summary can be found here.

Courtesy Jacob Barron, CICP, NACM staff writer

BIIA Comment:   Within this context one of our members was quoted not too long ago that enterprises without a functional credit management live dangerously

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