Singapore Firms Not Strategically Managing Their Business Risks: KPMG

More than half of companies polled in Singapore may be unprepared for a future downturn. Just over half (51%) of all companies polled in Singapore have implemented an enterprise wide risk management programme. Only one-in-four (26%) understand its strategic importance.

 

The third in a series of surveys since 2002, KPMG’s Singapore Enterprise Risk Management Survey 2010 nevertheless shows that ERM adoption has come of age. In the 2002 survey, just 4% of companies had adopted ERM. This number rose to 35% of all companies surveyed in 2006.

 

In this 2010 survey, this number has risen to 51% and in all, 78% of all companies polled have either implemented an ERM programme or plan to do so over the next two years.

“What is surprising is that in-light of the turmoil which confronted the financial sector these past two years, only 61% of them have implemented ERM,” notes Irving Low, Head of Enterprise Risk Management at KPMG in Singapore.

A total of 31 financial institutions responded to the survey. These comprise banks (25%), insurance companies (25%) and other financial institutions (50%) such as funds or small boutique firms.

 

ERM Builds Confidence

Companies with more mature enterprise risk management programmes tell KPMG they are better prepared to navigate risks in an increasingly complex business environment.

 

Among respondent companies with an ERM programme of more than three years, 53% felt they were able to manage their key risks ‘to a large extent’. In comparison, just 19% of companies without ERM programmes believe they can manage their key risks ‘to a large extent’.

“This 2010 survey affirms what we have been saying, that the suite of benefits experienced from an ERM programme increases with experience. It also demonstrates the progressive value that ERM can bring over time,” says Low.

 

Work in Progress

When asked the extent of their ERM implementation effort, most companies had not fully implemented the key elements of an ERM programme:
 

  • 64% had not fully established a portfolio view of their risks
  • 74% had not fully disclosed their ERM programmes to stakeholders
  • 78% had not fully integrated risk management objectives into key performance indicators.

 

In all, 77% of respondents only expect their ERM programmes to protect assets. Just 26% of respondents view ERM as a means to seize business opportunities.

According to Low, the survey suggests that most companies are still missing out on the more strategic benefits of ERM. He adds that the role that ERM plays in their company is still more tactical in nature, rather than strategic and efforts are still focused on using ERM to manage downside risks.”

 

“This result is disappointing, as 78% of companies with risk management programmes polled have risk executives with direct access to C-level executives or the risk oversight committee,” he added.

People: The Weakest Link

A whopping 91% of companies which have implemented ERM agreed that it has helped them manage the uncertainties of the recent crisis.

 

However, ERM efforts are still largely performed in ‘silos’. More effort is thus required to drive ERM through all levels of a company.

 

The survey reveals that the responsibility for risk management often still resides at the senior management level. Just 34% of companies surveyed are communicating their ERM initiatives to all staff, and 27% having developed risk knowledge or management training.

 

“Anecdotally, we observe that most companies which have implemented ERM have not integrated all risk-related functions to achieve a ‘dashboard’ view of the risks on an enterprise-wide basis,” said Low. “In addition, the survey suggests that the crisis has revealed a need to improve in many risk-related areas.”

 

Examples chosen by respondents are risk knowledge and competency (93%), risk oversight and leadership (90%) and risk communication across the organisation (87%). This suggests that their ‘people’ are still the weak link in sustainable risk management practices.

 

The Future of ERM

Looking to the future, many companies surveyed recognise the need to align their risk management efforts with business goals and plans if these efforts are to be sustainable.

 

Supporting this, are the ERM priorities revealed by respondents for the next one to two years shared by respondents. Forty-five percent of respondents plan to align their risk management efforts with business objectives. The same proportion (45%) plan to integrate risk management into corporate management processes.
However, many companies still face challenges in developing and sustaining ERM programmes.

This is because risk management is often viewed independently from the day-to-day operations.

 

The key challenges respondents indicated were all people-related. These include: lack of time and effort (58%); lack of support from senior management (52%); and risk management oversight committees are not, or only partially equipped with adequate risk experience and knowledge (37%).

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