News & Resources

Study: Risk management may yield larger returns

Feb 24, 2012 Philip Burgess

New research suggests risk management practices may impact an organization's financial viability. Specifically, companies with greater "risk maturity" have been shown to reap large returns on investment. According to a report released this week by Ernst & Young, companies in the top 20 percent of risk maturity - defined by the number of risk management strategies used - produced three times the level of Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) as firms in the bottom 20 percent. Until a few years ago, risk management was widely viewed as measure to hedge against excessive losses - few saw it as a clear financial strategy with the potential to improve returns. "Making a move from being risk-averse to risk-ready may require a significant shift," said Randall Miller, global risk leader at Ernst & Young. "Ultimately, risk management is about changing the culture of the business. It is about changing the lens through which leaders view the decisions they make." It'd be interesting to note whether the same findings could be applied to consumer credit risk management - a strategy that many lenders have adopted in the wake of the housing collapse.