The July/August edition of Consulting highlighted key risk consulting opportunities identified in Accenture's recent survey of more than 250 c-level executives from around the world. In order to dig deeper into the findings, Consulting's One-on-One sat down with one of Accenture's top corporate risk management practice leaders Bill Spinard.
Consulting: What were the survey's key findings?
Spinard: First of all, it's important to realize that the survey was conducted in late fall and early winter 2008–the height of the economic crisis. And so we were perfectly timed to take the pulse of how they were managing through this unprecedented volatility. As a result, it's not entirely surprising that 85 percent of C-level executives said they needed to make significant upgrades to their risk management systems.
Many executives identified one of the biggest problems was the lack of integration in their risk management systems. In many cases, we see company's risk systems as siloed, focused only on a discrete function. So, I find it encouraging that clients realize that they now want help pinpointing how to incorporate risk management into strategic planning, strategic budgeting and performance management
Consulting: How can risk management improve performance management?
Spinard: We're seeing a lot of opportunities right now around ways to tie performance management to compensation. Corporate strategy can't be all cost cutting. It can't all be about restrictions on risk taking. A significant number of the respondents to the survey told us that they want to figure out how to better pay executives for risks they are taking.
Consulting: In this economy, are companies willing to spend money on risk management?
Spinard: Over 40 percent of the respondents said that their company's risk management costs have increased by more than 50 percent. And 70 percent reported that their spend on risk management has increased by more than 10 percent. This is important. Because at a time when cost cutting is high, they say they are willing to make these investments.
We don't see the costs associated with risk management slowing down anytime soon. The coming regulations are expected to increase compliance costs. It's not a matter of if they'll buy risk management advice, but how. What they say they need help figuring out is where to make investments such that they get the best returns.
Consulting: Which risk management consulting projects offer the best bang for their buck?
Spinard: We think companies should be investing more in data quality. Many companies felt they entered the downturn flat footed because of an inability of their risk management systems to respond as quickly as real time events unfolded throughout the economic crisis. Management did not have the right information, did not get it at the right time, and it wasn't put into a format in which they could make the crucial day-to-day decisions.
As they try to strike this balance between cost cutting and targeted investments, we think they need to focus on the information side. They need to be able to know the trade offs between risk taking and not risk taking and to be able to see the tradeoffs across all of their dimensions of risk. They need to be able to manage their companies with their eyes wide open.
Consulting: If regulatory compliance is going to be a big driver of risk management consulting over the next few years, how does that lead to the strategic advantages you described?
Spinard: Risk compliance is not just about meeting a new government standard. Increasingly, they may be told that independent bodies, like the S&P, is going to rank them based on their ERP and risk management capabilities. So, the more sophisticated and integrated the systems, the higher the ranking. For public companies, that's an easy one. But compliance alone is not sufficient to justify the more significant investments.
The more complex question is how do we know that? 1) We know we've made the right investments; and, 2) how do we know we're getting the right return? If the risk management system is providing you with the information, you're in a better position to make the right decisions. We're finding that management is very comfortable in seeing risk management systems as helping to eliminate the fog of uncertainty. The greater the visibility, the greater the future earnings flow, the less volatility and the fewer surprises.
Going forward, there may be further economic volatility. While we can't predict the economy, it's likely that the volatility we've experienced could continue to affect consumer behavior and governments have and continue to respond to the situation. Risk management, which considers the full range of market variables, can help companies understand the implications of their decisions, thereby reducing uncertainty.
Consulting: Where do you see the biggest risk management opportunities?
Spinard: There's no doubt that the more companies expand into emerging markets, the greater the risk exposure. A few years ago, risk management was focused on emerging markets like Russia, India and China. Different regions may come out of this economic crisis faster than others.
Asian markets present themselves as very potentially attractive markets. While working with clients pursuing business leads in that region and in other emerging markets, we encourage them to pursue business leads with an expanded risk lens that will help them get a more complete picture to better understand the new market.
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