Few companies have the "big picture" view needed for effective risk and compliance management. They understand the importance of an integrated approach to these activities but many have short-sighted practices that end up becoming a costly and complex burden, reveals a new global report, "Ascending the Maturity Curve: Effective Management of Enterprise Risk and Compliance," written by the Economist Intelligence Unit and sponsored by SAP.
Companies typically respond to ever-evolving compliance obligations by developing new initiatives to deal with new requirements. This leads to disparate responses, with a high level of redundancy and unnecessary complexity. Recent global events have increased pressure on companies to remedy this problem and implement more effective risk and compliance management practices—but in many cases, little action has been taken.
Awareness of risk and compliance issues remains low in some business functions. Respondents from finance are the least likely among several functions to admit to risk and compliance failures – only 28% did so in a survey conducted for the study. This is a worrying state of affairs considering the economic turmoil of the past 30 months, which has seen businesses across the spectrum under pressure to tighten their fiscal oversight mechanisms.
At a time when regulatory scrutiny is greater than ever, ignoring risk can be dangerous, warns the study, noting that just 37% of respondents say that their organisation has suffered from one or more significant risk or compliance failure in the past three years.
The study also finds that the majority of risk failures take place at the business unit level, and tend to be addressed in isolation. More than one-quarter of respondents say that they fix the problem within the unit, deliberately out of sight of the wider organisation. This suggests that a significant proportion of companies are not sharing risk information and learning the broader lessons from risk failures.
High-performing companies are more likely to have a consistent risk appetite across functions in the organisation, finds that study. Less than a third of those in the lower-performing group (those in the bottom 60% of their industry) offer the same assessment, suggesting that if companies can overcome the difficulties of introducing a streamlined risk management strategy, the bottom line will benefit.
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