Risk management isn’t just about avoiding disaster – it can boost the bottom line, too
Is improved financial performance associated with the maturity of an organisation’s risk-management approach? Findings from the Aon Risk Maturity Index suggest that the answer is “yes.”
Using data from publicly traded companies, researchers at Aon UK and the Wharton School of the University of Pennsylvania have uncovered a statistically significant relationship between an organisation’s risk-management development with its financial performance – higher risk maturity ratings are associated with improved return on assets and stock performances.
Additionally, the components if maturity associated with these performance differences are likely to vary by industry, given different risk factors.
An innovative and industry-leading tool developed in partnership with the Wharton School, the Aon Risk Maturity Index allows risk and finance leaders to assess the development of their organisation’s approach to risk.
The index harnesses the experience and knowledge of Aon and transforms it into an easy-to-understand and free online assessment of risk-management processes, corporate governance and management decision processes.
Participants receive a customised risk maturity rating and general commentary on improving their rating. About two weeks later, they receive a detailed report.
Organisations that received an above average risk maturity rating display common traits – awareness of the complexity of risk, formal agreement of risk-management strategy and expectations, and the degree to which organisational architecture is aligned to support achievement of risk-management objectives.
These three areas – awareness, agreement and alignment – can constitute the initial roadmap for organisations seeking to enhance their approach to risk.
As more data is captured, Aon and the Wharton School will work to identify the specific sets of activities associated with the greatest differences in performance and will determine if/how they differ by industry.
The long-term vision is to develop the Aon Risk Maturity Index into an industry standard for providing real-time insights into an organisation’s ratings and activities relative to peers and best practice.
Client feedback has been extremely positive. “Companies, especially those listed on stock exchanges, are undertaking enterprise risk management (ERM ) in different business sectors and regulatory environments,” according to Creighton Twiggs, group risk manager Clariant International.
“It is difficult, if not impossible, to benchmark ERM implementation of one business against another in the same business sector as well as businesses in different business sectors. “The Aon Risk Maturity Index makes an important contribution to this benchmarking process and therefore supports the application and development of ERM .”
Steven Harmer, senior consultant at Aon Global Risk Consulting, says, “Participants recognise that the Aon Risk Maturity Index provides tangible results and valuable insights which senior risk and finance leaders can leverage to guide risk management investment decisions.
“The maturity levels and ratings insights are driving both management and board-level discussions regarding the appropriate risk maturity targets for an organisation and actions that need to be implemented.”
All responses and risk-maturity ratings are confidential; any reports from Aon and the Wharton School cite data in the aggregate only. Wharton receives no compensation for its participation as a research partner.
The Aon Risk Maturity Index received the 2012 Business Insurance Award for Innovation.