Financial crisis puts risk management under the spotlight

By SearchSMBAsia Editors | Jul 9, 2009

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Reducing a company’s focus on risk management [6]during a downturn is a false economy. Although businesses feel compelled to “do more with less,” the economic climate can, in fact, increase or intensify the level of risk companies are exposed to, as it can affect anything from levels of capital expenditure to staffing requirements. This is according to a recent report titled, “Managing risk during an economic downturn,” from global advisory and consulting firm Ovum.

Ovum’s study reveals that companies are now starting to rethink their approach to risk management and are placing a more strategic focus on its implementation and deployment to drive it from a siloed approach to an enterprise approach. As a result, risk management promises to become an even more central part of planning, managing and running a business.

Ovum said that much of the failure around past and current risk management practices does not point to a failure of risk management as such, but to a lack of understanding about the discipline and how it should be applied correctly. The financial crisis has highlighted the dangers of managing various risk types in isolated silos, each with its own set of tools, applications and models. Hence much of the failure around risk management lies in the inability to have a more holistic view of risk management and understanding the inter-dependencies of risk across different lines of business.

“The current economic crisis has also underscored the need to treat risk management not just as a strategic ideal, but also as an operational imperative,” said Helena Schwenk, senior analyst at Ovum and author of the report. “Businesses need to make sure that risk management trickles down from high-level business strategy, objectives and goals to the operational coalfaces of the organisation so that all employees, at all levels, gain a company-wide perspective on risk,” Schwenk concluded.