Almost 80% of respondents said risk appetite is incorporated into decision-making only after decisions have already been taken

The business processes and systems employed by most companies are deficient – being overly focused on factors such as revenue and profit and lacking the necessary visibility of risk, according to a new report.

The paper, Risk appetite: A multifaceted approach to risk management, identified improvements that can be made to current management practices that can strengthen the risk-return relationship.

‘In the majority of businesses, reporting and decision making at all levels of management are oriented around factors such as revenue and profit. This is like watching a television where one of the three colour feeds – red, green and blue – simply isn’t working. You get a picture of what is going on, but it certainly isn’t a full picture and you lack any real clarity,’ argued Francis Lacan, IBM global risk and compliance solution manager and one of the paper’s authors. ‘The missing color is Risk.’

Far too many decisions are made without an appropriate assessment of the risk associated with the business case, noted the research. Nearly 80% of participants to the survey acknowledged that risk appetite is only incorporated into decision-making after decisions are already taken.

Lacan added: ‘It is as if day to day management of the business relies simply on the limited visibility offered by a picture composed of the red and green feeds only, while the business has invested heavily, sometimes even over-invested, in separate risk management systems that show the blue feed on an entirely different screen.’

IBM said the current market turmoil is making companies reassess their risk exposure and focus on what their ‘risk appetite’ is or should be.

‘The current turmoil should lead to the full integration of risk into business management systems. Not only will this enable businesses for the first time to have a real picture of the performance and risk-return relationship across their enterprises, but it will lead to very different business decisions and even the evolution of entirely new business models,’ concluded Lacan. ‘After all how can a board have any real appreciation of a corporation’s risk appetite or make appropriate business decisions without a clear picture of what is actually going on?’