While businesses manage risk in a wide variety of ways, too many are not quantifying the threats they face, according to Aon’s Global risk management survey 2019.
In a wide-ranging report of global businesses, it found that only 24 percent of respondents said they quantify their top 10 risks. In addition, only 20 percent used risk modelling and one in ten admitted they had no formalised process in place to identify risks.
“Aon’s 2019 survey has attracted the largest number of participants since inception, but the participants’ risk readinesshas reached the lowest level in 12 years,” the report said. “With volatile global economic conditions and fast changes in today’s digital and sharing economy, these top risks, many of which are either non-insurable or only partially insurable, are becoming increasingly unpredictable to prepare for and mitigate.”
Digging deeper into the findings, the report found that managing the failure to innovate and meet customer needs is the risk that has the dubious honour of being the least prepared for. Its risk readiness has fallen by 11 percent between 2017 and 2019. This is “… at a time when technologies and new business models are transforming not only how new products are being created, but also how they are consumed,” the report said. Businesses and risk departments are clearly struggling to keep pace with these changes.
Risk quantification was the least cited mitigation action among respondents. It suggested that this could be partly down to the fact that more of the top risks identified by respondents were uninsurable, it could also be the result of belt tightening. But it said, “as more organisations have tightened their risk management budgets in response to changing market factors, quantification is an effective way to prioritise risks, and decide what corrective actions to take.”
About 10 percent of respondents said they had no formalised process in place to identify risks. This lack of formal risk management practice was not limited to small businesses, as might be expected. “About 12 percent of European and 10 percent of North American companies have no formal process for risk identification and a small percentage of companies with turnover of more than $10 billion indicated they manage risk without a formal process.”
The research supports the IRM’s own findings from an extensive survey carried out on its behalf by the Cambridge Centre for Risk Studies last year. There was a lack of dedicated tools to address many of the top risks identified by the researchers. “What is particularly interesting is the lack of maturity in the development of tools to support the risks that feature in the top ten list,” the report said. “Frameworks and tools are lacking for geopolitical risks, reputation, company viability, and macroeconomic and trade factors.”
Top five risks identified by Aon’s survey: