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Organisations using archair risk management : PwC

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Many companies and organisations have “worryingly incomplete” and “archaic” risk management practices, according to a new PwC paper launched today.

The report, ‘Black swans turn grey – the transformation of risk’ looked at the issue of risk management and how it can benefit businesses, saying that having up to date strategies provides higher market rating and a competitive edge.

It suggests that businesses need to be more agile and innovative if they are to combat catastrophic, major-impact ‘black swan’ events such as terrorist attacks, tsunamis or major oil spills, by updating and innovating archaic practices to achieve wider risk resilience.

“The risk landscape is changing, and established risk management approaches need to be updated to keep pace. Many organisations currently have the wrong focus,” said Richard Sykes, PwC governance, risk and compliance leader. “They major on financial and operational risks and crucially regard risk and strategy as separate, rather than seeing risk-taking as a key source of value creation.

“But the world where risk events could be predicted – and their impacts controlled – is fast disappearing.”

The paper urged business to change from enterprise risk management (ERM), the practice currently used by most major corporations, to comprehensive risk management practice (CRM). They said companies using the ERM approach develop a box-ticking, process led approach to risk management, whereas CRM made companies “more distinctive and appealing and gives a competitive edge.

Armoghan Mohammed, PwC risk partner, said, “By understanding today’s risk landscape, organisations can progress from managing specific risks to achieving wider resilience. What is needed is a new, more flexible and holistic approach to risk management that develops a risk aware culture and fosters an explicit focus on risk appetite. This will provide a clearer ownership of risks at leadership levels – with risk awareness and accountability shared across the organisation through a common risk culture.

“It can also give a higher market rating. There’s growing evidence that businesses that are seen to truly embed a risk-aware culture and behaviours are valued more highly by the markets.

“Crucially, ultimate responsibility for driving and embedding this change lies not with the risk function, but with the board. It’s their duty to embed the right risk culture and behaviours, supported by an appropriate rewards structure.

“The resulting awareness and scrutiny of risk at all levels in every business decision will help to protect the organisation’s reputation – and further enhance its resilience in an uncertain world.”

A copy of the report can be downloaded from the PwC website.

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