Evolving Global Risk Landscape is Outpacing Organizational Preparedness
NC State Poole College of Management
NEW YORK (September 27, 2022) – As global organizations face an increasingly complex risk environment, a new report issued today by the AICPA & CIMA and NC State’s Enterprise Risk Management (ERM) Initiative found that the majority have insufficient approaches to risk management and immature ERM processes. The report found that approximately 60 percent of global finance and business leaders agree that the volume and complexity of corporate risk have increased “mostly” or “extensively” over the last five years. However, over two-thirds of respondents do not have complete ERM processes in place.
The 2022 Global State of Risk Oversight: Managing the Rapidly Evolving Risk Landscape includes insights from a survey of 747 global senior finance and business leaders conducted in 2022. The survey measured finance-related executives’ assessments of the level of maturity in their organization’s proactive management of these risks through adoption of enterprise risk management (ERM) processes (a methodology that looks at risk management strategically from the perspective of the entire firm or organization and aims to identify, assess, and prepare for potential losses, dangers, hazards, and other potentials for harm that may interfere with an organization’s operations and objectives and/or lead to losses).
Increased uncertainty and rapidly evolving events, including geopolitical shifts, supply chain disruptions, competition for talent, increased volume of available data, climate change concerns, and lingering effects of a global pandemic, are continuing to drive the complexity of risk challenges senior executives across the globe must navigate. Even when faced with these complexities of risks, fewer than half of respondents said they do not believe their risk management oversight model is “mature” or “robust” (Europe & U.K. – 31 percent, Asia & Australasia – 41 percent, Africa & Middle East – 26 percent, U.S. – 29 percent). And, similarly, only between one-third to one-half of respondents claim to have a complete ERM processes in place (Europe & U.K. – 33 percent, Asia & Australasia – 41 percent, Africa & Middle East – 29 percent, U.S. – 32 percent).
“Globally, organizations face the realities of an increasingly complex risk environment while realizing their current approach to risk oversight may be insufficient in a rapidly changing risk environment,” according to Mark Beasley, KPMG Professor of Accounting and Director of the ERM Initiative at NC State. “And interestingly, even prior to the massively disruptive Covid-19 pandemic, business leaders have sensed an overwhelming volume and complexity of risks impacting their organizations. As this and our previous studies suggest, risk management does not appear to be getting easier.”
Business leaders understand their organizations must take risks to generate returns. But there was a noticeable variation among respondents when asked if their risk management processes provided a competitive advantage. A higher percentage of respondents in Asia & Australasia (40 percent) and Africa & Middle East (34 percent) believe their risk oversight is providing an important competitive advantage, while the percentages are much lower in Europe & U.K. (13 percent) and the U.S. (11 percent). However, the report shows a disconnect among views from around the world when risk exposures are considered by senior executives when evaluating possible new strategic initiatives, with higher percentages reported in Asia & Australasia and Africa & Middle East (both 66 percent) and slightly lower in Europe & U.K. (58 percent) and the U.S. (47 percent).
“Business leaders that embrace the reality that risk and return are related are likely to increase their investment in enterprise risk oversight to strengthen their organization’s resiliency and agility when navigating the complex and uncertain risk landscape,” said Ash Noah, CPA, CGMA, Vice President & Managing Director of Management Accounting at the Association of International Certified Professional Accountants. “Organizational value goes beyond the balance sheet. Along with providing protection for businesses, embracing ERM supports the creation of value and long-term viability and sustainability.”
Additional key findings from the report include:
- Respondents in most regions noted Covid-19 having “mostly” or “extensively” changed the nature of top risks affecting their organization – Europe & U.K. (48 percent), Africa & Middle East (61 percent), Asia & Australasia (71 percent), U.S. (41 percent).
- Most executives do not believe their organization’s risk management processes provide competitive advantage – Europe & U.K. (13 percent), Africa & Middle East (34 percent), Asia & Australasia (40 percent), U.S. (11 percent).
- About one-half of organizations outside of the U.S. describe their metrics for monitoring risks as “mostly” to “extensively” robust (Europe & U.K. – 47 percent, Asia & Australasia – 47 percent, Africa & Middle East – 50 percent), while only 31 percent in the U.S. describe their metrics at that level.
- Most organizations (Europe & U.K. – 64 percent, Asia & Australasia – 64 percent, Africa & Middle East – 76 percent) claim to have a standardized process for identifying risks, where the U.S. is the exception at 51 percent.
The 2022 Global State of Risk Oversight: Managing the Rapidly Evolving Risk Landscape includes data collected during 2022 through an online survey of global business leaders across four core regions (Europe & the U.K., Asia & Australasia, Africa & the Middle East, United States). In total, 747 fully completed surveys were submitted. Of those about half serve in senior accounting and finance roles, with the remaining representing a variety of management positions within a range of industries.
About the Association of International Certified Professional Accountants, and AICPA & CIMA
The Association of International Certified Professional Accountants® (the Association), representing AICPA® & CIMA®, advances the global accounting and finance profession through its work on behalf of 689,000 AICPA and CIMA members, students and engaged professionals in 196 countries and territories. Together, we are the worldwide leader on public and management accounting issues through advocacy, support for the CPA license and specialized credentials, professional education and thought leadership. We build trust by empowering our members and engaged professionals with the knowledge and opportunities to be leaders in broadening prosperity for a more inclusive, sustainable, and resilient future.
The American Institute of CPAs® (AICPA), the world’s largest member association representing the CPA profession, sets ethical standards for its members and U.S. auditing standards for private companies, not-for-profit organizations, and federal, state, and local governments. It also develops and grades the Uniform CPA Examination and builds the pipeline of future talent for the public accounting profession.
The Chartered Institute of Management Accountants® (CIMA) is the world’s leading and largest professional body of management accountants. CIMA works closely with employers and sponsors leading-edge research, constantly updating its professional qualification and professional experience requirements to ensure it remains the employer’s choice when recruiting financially trained business leaders.
About North Carolina State University’s Enterprise Risk Management (ERM) Initiative
The Enterprise Risk Management (ERM) Initiative in the Poole College of Management at North Carolina State University provides thought leadership about ERM practices and their integration with strategy and corporate governance. Faculty in the ERM Initiative frequently work with boards of directors and senior management teams helping them link ERM to strategy and governance, host executive workshops and educational training sessions, and issue research and thought papers on practical approaches to implementing more effective risk oversight techniques (www.erm.ncsu.edu).
This post was originally published on Poole Thought Leadership here.