S'pore firms not fully utilizing risk management

Just over half of businesses in Singapore are equipped to handle unexpected market changes with the implementation of an enterprise risk management (ERM) strategy, but others leave themselves open to the potentially adverse impact of market fluctuations, reveals a new study Monday.

Conducted by accounting firm KPMG, the Singapore Enterprise Risk Management 2010 survey revealed that 51 percent of companies polled had implemented ERM programs, a 16 percent increase from a similar study in 2006 that indicated 35 percent of companies had deployed ERM initiatives.

The survey this year also revealed that 27 percent of respondents said they were planning to implement ERM programs in the next one to three years.

The third of KPMG's such survey, the study was conducted between October 2009 and early 2010 and polled 203 companies from the private sector. Of these respondents, 52 percent were part of their company's senior management team while 25 percent had positions within the board of directors.

The survey also showed that organizations with more mature ERM initiatives were better prepared to navigate risks in an increasingly complex business environment.

This confidence was noted particularly among companies with programs that spanned more than three years. Among such organizations, 53 percent felt that they were able to manage their key risks "to a large extent". By comparison, respondents without ERM programs did not exude the same level of assurance with only 19 percent believing that they, too, were able to manage their key risks "to a large extent".

"This 2010 survey affirms what we have been saying in that the suite of benefits from an ERM program increases [over time and experience]," Irving Low, executive director and head of enterprise risk management practice at KPMG Singapore, said in the report.

ERM not optimally employed
However, while some local companies have implemented ERM programs, these organizations have yet to integrate key elements of such initiatives, according to KMPG.

The survey revealed that 29 percent of respondents with an ERM program had yet to define the organization's risk-taking appetite. Similarly, 78 percent had not integrated risk management objectives with key performance indicators (KPIs) and 72 percent did not make the effort to control risk management costs.

Overall, 77 percent of respondents said they expected their ERM initiatives to protect assets and cover downside risks, while only 26 percent viewed such tools as "strategic" and function as a means to seize business opportunities.

"Our survey suggests that most companies are still missing out on the more strategic benefits of ERM," said Low. "The role that ERM plays in these companies is still more tactical in nature, rather than strategic, and efforts are still focused on using ERM to manage downside risks."

He added that the above result was "disappointing" as 78 percent of companies with ERM programs have taken the initiative to assign risk management executives who have direct access to C-level executives or the risk oversight committee.

KPMG recommended that these companies increased the involvement of these risk management executives in strategic decision-making in order to reap the full benefits of their ERM initiatives.

The survey also revealed that ERM practices were still conducted "in silos", particularly at the senior management level, and such programs were not being disseminated to the rest of the company.

In fact, just 34 percent of companies surveyed said they kept all employees informed on ERM initiatives, while 27 percent said they developed risk knowledge or management training for their staff, according to the study.