ATLANTA -- Companies are embracing the concept of enterprise risk management but continue to struggle with implementation according to the findings in the 2006 Oversight Systems Report on Risk Management. The national survey of financial executives released today also found room for improvement in the way companies assess, manage and prevent risk.
The report (available free at www.oversightsystems.com/survey ) indicates that nearly half of companies surveyed (43 percent) report having faced significant operational surprises during the last year.
Executives recognize the value of enterprise risk management with 58 percent of financial executives reporting that their company has an enterprise risk management approach and philosophy that considers various interactions among different types of risk. Identical to the 2005 findings, this year 68 percent of financial executives say their CEO is placing greater emphasis on holistic management of all types of risk. However, it appears many critical elements of enterprise risk management are still not in place in corporate America.
Clearly, executives see a need for better risk management because companies are getting burned on a regular basis, said Dana Hermanson, Dinos Eminent Scholar Chair of Private Enterprise at Kennesaw State University. Hermanson is also an advisor to Oversight Systems. We still see a gap between top management believing that their company employs enterprise risk management and the reality that they are not pushing ERM down through the organization with awareness and training.
Only 33 percent of financial executives say their company has formally trained executives and business line managers to assess the probability of various types of risk, down from 35 percent last year. In addition, 41 percent of financial executives say their company has a widely communicated definition of risk, down from 45 percent in 2005.
Financial executives and businesses are beginning to embrace the concepts of enterprise risk management, but implementation and effectiveness are still in their infancy, said Mark S. Beasley, professor of accounting and director of the Enterprise Risk Management Initiative at North Carolina State University. Beasley is also an advisor to Oversight Systems. While a majority say they take a top-down approach to risk management, many are not very sophisticated in their risk management abilities.