Importance of Risk Management During Downturn

by CXOtoday Staff    Jul 07, 2009

As per an Ovum report titled Managing Risk During an Economic Downturn, reducing a company’s focus on risk management during a downturn is a false economy.

Although businesses feel compelled to do more with less, the economic climate can, in fact, increase or intensify the level of risk companies are exposed to, as it can affect anything from levels of capital expenditure to staffing requirements, the advisory and consulting company’s report stated

Ovum’s study reveals that companies are now starting to rethink their approach to risk management and are placing a more strategic focus on its implementation and deployment to drive it from a siloed approach to an enterprise approach. As a result, risk management promises to become an even more central part of planning, managing and running a business.

Helena Schwenk, senior analyst at Ovum and author of the report, said, "The financial crisis has provided a very high profile example of how poor risk management practices can severely impact not only a business, but also a whole industry sector."

 "While the banking system recovers and readjusts from the crisis and moves to a more tightly controlled and regulated risk management environment, other industry sectors are advised to take heed of the risk management lessons learnt from this painful episode," she said.

Much of the failure around past and current risk management practices does not point to a failure of risk management as such, but to a lack of understanding about the discipline and how it should be applied correctly.

The financial crisis has highlighted the dangers of managing various risk types in isolated silos, each with its own set of tools, applications and models. Hence much of the failure around risk management lies in the inability to have a more holistic view of risk management and understanding the inter-dependencies of risk across different lines of business.

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