Close Link Between Risk and Performance

Monday, February 20, 2012 Print Email

A survey published by Ernst & Young recently has identified a close relationship for businesses between the level of risk investment and financial performance.

The study found companies in the top 20% of risk maturity globally, generated three times the level of earnings before deductions, as those in the bottom 20%.

For the purposes of the study, risk maturity was defined by the number of risk management practices, but while previous business leaders may have disregarded risk management as strategic to performance, this appears to no longer be the case.

Commenting on the findings, Gerard Gallagher, Ernst & Young lead partner for markets, said: ‘Companies that succeed in turning risk into results will create competitive advantage through more efficient deployment of scarce resources, better decision-making and reduced exposure to negative events.’

Gallagher added: ‘Making a move from being risk-averse to risk-ready may require a significant shift. Ultimately, risk management is about changing the culture of the business. It is about changing the lens through which leaders view the decisions they make.’

Compiled from 576 interviews with companies from 16 nations, as well as data from 2,750 company reports, the results revealed most carried out basic elements of risk management, but that the top-performing companies clearly practised it on a more frequent and consistent basis.

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