Ernst & Young urges companies in the Middle East to adopt simple frameworks to improve risk management strategies

The survey, titled Companies on Risk: the benefits of alignment, interviewed 441 senior decision makers in large global organizations. Findings show that two-thirds (67%) of companies report overall levels of risk have increased over the last 2-3 years, and a similar proportion (66%) plan to increase their risk management expenditures over the next three years.

"These numbers illustrate a heightened perception of the importance of effective risk management among global companies which is leading to increased investment in risk management strategies. The challenge is to focus that investment where it adds the most value. At the moment, there is a tendency of over-engineering in some areas of the business, whilst real risks in other business areas are not identified and elevated to executives This is often due to the lack of a common consistent definition and measurement of risk across an
organisation " said Michael Green - Partner, Business Risk Services - Ernst & Young Abu Dhabi.

Although aligning risk management strategies with the objectives of the business is considered critical to the success and effectiveness of a company's risk approach, the global survey shows that two out of five companies have no formal processes to align risk assessment with corporate strategy. However, more than four out of five (83%) claim to have a risk embedded culture within their organization, and nearly nine out of ten (87%) claim to educate their people about the importance of risk management.

The findings suggest that global companies still have some distance to go until they obtain the full value and benefits of their risk management approach. They also suggest that company leaders are continuously facing challenges in ensuring that corporate decisions align with the overall needs of the business.

"When the global economy is constantly growing, the Middle East is by no means an exception. The region is transforming into a dynamic hub, creating tremendous opportunities for growth and business - and for risk. Finding the correct balance between risk and reward is the key to truly realizing the full potential of those emerging opportunities," said Edward Quinlan - UAE Country Managing Partner.

In the Middle East, being an emerging economy, company leaders need to embed risk management into the cultures of their organizations and to start raising awareness and educating their people on the significance of risk.

"Good risk management is based on knowing what the risks are, who is responsible for managing them and what needs to be done to address them. While we are seeing an increase in risk awareness among business leaders in the Middle East, the next step is turning this awareness into practical tools for monitoring risk and enhancing risk management procedures," said Ali Al Shabibi - Partner, Business Risk Services - Ernst & Young Dubai.

The global survey suggests that for business leaders to realize the full potential of their risk departments, they need to re-direct their risk management strategies by building simple practical frameworks and adopting a step-by-step approach which includes;

• Reevaluating the current risk management approach by asking what the key risks are, what risks are covered and who is managing what.

• Challenging whether adequate formalization of risk management is already in place

• Assessing the alignment between goals, risks and controls, and focusing on the risks that really matter

• Maintaining and building dialogue with, and across functions to avoid gaps, overlaps and inconsistencies.

Other findings from the global survey include;

• The role of the CEO, CFO and wider Board of Directors has been changed in terms of greater responsibility and accountability for risk and risk management.

• Risk management processes have positively affected working relationships by a factor of 6:1, leading to increased effectiveness in decision-making, communications and better alignment of effort.

• Key areas of successful risk management are clear ownership of risk (77%), understanding thought and organization (76%), and internal mechanisms to communicate on risk (71%).