Why Risk Maturity Matters
A combination of dynamic and powerful forces including cyber risk, ever-accelerating technological advances, regulatory complexity, natural and human-made catastrophes, and globalization of the supply chain confronts manufacturers more than at any other point in history. To respond to this continually evolving array of risks, executives need robust tools and fresh insights to support their understanding of the risk landscape, as well as to accurately assess the sophistication, effectiveness, and maturity of their risk management programs.
To provide insights for our members, MAPI embarked on a collaboration with Aon, a leading professional services firm that helps manufacturers identify and mitigate risk and volatility. Aon’s Risk Maturity Index (RMI) was developed with The Wharton School at the University of Pennsylvania, and enables executives to assess the sophistication of their risk management efforts, and then to improve their risk governance and overall program effectiveness. Why does risk maturity matter? According to the RMI, companies with advanced risk management practices can generate enhanced financial results in times of market volatility than their peers.
Earlier this year, executives from several MAPI councils participated in the RMI. By comparing their responses against the manufacturing dataset consisting of 208 organizations, as well as the full RMI dataset of nearly 2,000 participants across 27 other distinct industry sectors, we were able to identify several insights, outlined below.
Manufacturing exhibits above average risk maturity
The MAPI cohort, and the manufacturing industry, in general, exhibit more advanced overall risk maturity than that of the broader RMI global average. Further, the MAPI cohort scored higher than both the manufacturing industry average and the global dataset across 70% of the risk components. These risk components contain best practices related to governance, process, integration, culture, and communication. Within this, the MAPI cohort appears to be strongest in the area of culture and communication.
Opportunities exist for cross-functional collaboration
A majority of the MAPI RMI participants were in charge of either internal audit or risk management for their companies. Our analysis indicates that the two functions perceive the effectiveness of certain risk management practices, such as casualty/liability risk management strategy and insurance portfolio optimization differently. This suggests that there are opportunities for further cross-collaboration and communication to improve information-sharing across the enterprise.
More mature companies prioritize risk communications
As companies continue to run lean and ask employees to wear multiple hats, a reactive mentality can emerge. Unfortunately, in some cases, proactive communication around risks takes a backseat to daily job requirements. However, within the MAPI cohort, it appears that companies with more advanced risk maturity have prioritized risk communications, leading to a more proactive risk culture.
Human capital is a driver of risk performance
Numerous models have shown how organizations can use people as a key lever for driving growth strategies. Within the MAPI cohort, 94% of respondents with more advanced risk maturity indicated that they have consistent, data-driven executive-level understanding of the role of employee engagement as a driver of business performance. Further, 89% of these companies formally and consistently incorporate improvement of employee engagement levels into management performance evaluations. Finally, 94% of more mature organizations said that leadership development programs were available and consistently used.
Why risk maturity matters
Understanding the ten characteristics of risk maturity as well as the elements which impact those characteristics can be extremely beneficial to organizations who aim to develop a targeted strategy to improve their overall maturity. Given the strong correlation of advanced risk management practices and financial performance, including both stock price and profitability, risk maturity can be a competitive edge.
To access all of the risk maturity insights, read the full report.