Study Links Mature Risk Management to Value Growth

Corporations with strong
enterprise risk management (ERM)
programmes can achieve up to 25% higher market valuations, according to the Risk Management Society (RIMS).

Ahead of its annual conference, to be held in the US city of Denver, Colorado from 27 to 30 April, RMIS cites a recent study entitled
‘The Valuation Implications of Enterprise Risk Management Maturity’
, published by The Journal of Risk and Insurance.

The study, an independent research project between Queens University Management School (QUMS) of Belfast, Northern Ireland and the University of Edinburgh Business School, Scotland, confirms the value connection of mature ERM practices in organisations, with those exhibiting mature risk management practices realising a value growth potential of up to 25%.

Based on their findings, the authors report that “firms that have successfully integrated the ERM process 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.”

Mark Farrell of QUMS, the study’s co-author, added: “ERM is a growing area of interest for academics, especially in the post-financial crisis world,” and both RIMS and ERM software specialist LogicManager provided data gathered between 2006 and 2011 for a valuation maturity implication study to be undertaken.

“One of the biggest challenges in implementing an ERM programme is articulating the value that it brings.” added Carol Fox, RIMS director of strategic and enterprise practice. “This research makes that value link quite clear.

“Although the study necessarily focused on publicly traded companies, the value proposition of ERM applies to not-for-profits and the public sector as well. In highlighting this research, we hope that more organisations will take advantage of the RIMS risk maturity model to improve their risk practices and, in turn, create additional enterprise value.”

“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,” said Steven Minsky, chief executive officer (CEO) of LogicManager and developer of the RIMS risk maturity model.

The full research study can be accessed
here
.

Those interested in taking the RIMS risk maturity model self-assessment to determine the maturity of their ERM programmes can visit http://www.rims.org/RiskMaturityModel. Although RIMS membership is not required, users will be asked to register before free access is granted.

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gtnews
will publish a series of articles on ERM topics in the first week of May.

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