According to a recent study by the Journal of Risk Insurance, organizations exhibiting mature risk management practices realize a potential value growth up to 25%, confirming the value of strong enterprise risk management programs.
The study’s authors report that “firms that have successfully integrated the ERM processes into both their strategic activities and everyday practices display superior ability in uncovering risk dependencies and relationships across the entire enterprise, and as a consequence, enhanced value when undertaking the ERM maturity journey.”
The Journal of Risk and Insurance released the study, “The valuation Implications of Enterprise Risk Management Maturity,” as a compilation of data and analysis using the RIMS Risk Maturity Model (RMM), gathered over a period from 2006 to 2011. The study encompassed a broad data set of publically traded organizations from a variety of industries. RIMS members submitted nearly 50 percent of the data that researchers analyzed using the RIMS RMM model.
The Risk Maturity Model for Enterprise Risk Management was developed in 2005 by risk professionals and LogicManager, and is a free assessment tool for risk professionals and executives to develop and improve sustainable enterprise risk management programs. The resource is available online, allowing organizations to score their risk programs and receive an immediately downloadable report, which details current maturity levels and offers suggestions for achieving a higher level of maturity in each of seven attributes.
“Enterprise Risk Management is a growing area of interest for academics, especially in the post financial crisis world,” said Mark Farrell, author of the paper and the Actuarial Science and Risk Management Programme Director at Queens University Management School of Belfast.
“We wanted to undertake a valuation maturity implication study on ERM and approached RIMS and LogicManager to provide data for the study, given the extensive ERM maturity model they had built and collected valuable data on over a period of time. The model and data provided key insights into this emerging academic field that have important practitioner implications in terms of where ERM focus should be directed to help extract value, from an ERM program,” Farrell said.
For many organizations, articulating the value of an enterprise risk management program can be one of the biggest challenges in implementation. Information in the study, however, suggests that the value link is clear.
“Although the study necessarily focused on publicly traded companies, the value proposition of enterprise risk management applies to not-for-profits and the public sector as well. In highlighting this research, we hope that more organizations will take advantage of the RIMS Risk Maturity Model to improve their risk practices and, in turn, create additional enterprise value,” said Carol Fox, RIMS director of strategic and enterprise practice.
According to Steven Minsky, CEO of LogicManager and developer of the RIMS Risk Maturity Model, the study’s findings provide evidence of profitability, which is critical for implementation across the sector.
“Boards and ERM Committees now have an actionable internal roadmap and a corresponding return on investment measure to improve their enterprise risk management maturity from whatever level they are at today,” Minsky said.