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Overview
The increased speed of decision making to exploit growth in different markets has
made it even more critical for heads of ERM to share risk information in a manner
that allows executives to make well-informed decisions. While the traditional focus
on information quality has its merits, our research shows that the ease with which
executives can consume and act on ERM’s reports and information is more likely to
drive action.
Key Findings
Recommendations
2. Make risk reports easy to consume by reducing the amount of information delivered
and using an easy-to-understand format.
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3. Identify key strategic initiatives to make risk information relevant to executives’
priorities.
4. Align risk information and other information flows to the executive risk committee.
In a recent survey, nearly 80% of ERM heads list increasing the impact of their risk
reporting as a top priority for 2018.* The achievement of this goal, as per heads of ERM,
will not only help ERM achieve greater influence on decisions made by members of the
executive risk committee but will also increase the consideration of risk information in
the course of an organization’s day-to-day operations and major strategic decisions.
However, despite ERM leaders’ near-unanimous agreement on their goal, only a few
have been able to regularly achieve decision influence through their risk information.
Seventy-seven percent of ERM leaders still believe that their information fails to
achieve at least one of the three outcomes that lead to decision influence.
Costs of Inaction
The goal to influence executive decisions to account for risk information remains
worthy. The lack of decision influence, which manifests in executive inaction on critical
risk information, can be costly for organizations.
For instance, six months before the breach that affected the records of
nearly 148 million people, the leadership at Equifax was informed about an
application vulnerability that exposed the company to malicious actors. However,
the management team failed to act on this information, and as a result of the
breach, Equifax lost approximately $4 billion in market value and has since spent
approximately $90 million in a cleanup exercise.
However, it is these very changes in the business environment that are making it
even harder for ERM to get its message across to executive management, leaving
organizations exposed to the repercussions of ill-informed decisions.
Source: Research into executive decision making conducted by our Strategy, Market
Insights, Quality and FP&A Leadership Councils.
Executives are not only required to make faster decisions to take advantage of
fleeting business and growth opportunities but also must consider multiple sources
of information when making these decisions. In addition, they have to contend with
their own cognitive biases when evaluating this information to make relevant and
well-informed decisions. This means ERM’s traditional way of thinking about its risk
information, and how that fits into executives’ decision-making frameworks, needs to
be updated if it is to drive greater decision influence.
Our analysis revealed three key components or actions that ERM leaders must take
to reduce executive effort:
1. Increase Ease of Consumption: Use compelling visuals and clear and concise
language to help executives easily understand and interpret risk information.
Reducing executive effort leads to a greater impact on executive action than improving
information quality alone.
These three drivers are not only individually more effective at achieving decision
influence, but also, when done together, much more likely to have a greater impact on
decision influence than improving the quality of information alone (see Figure 3).
Conclusion
Driving greater action with the use of risk information has been a goal for a vast
majority of ERM functions. However, a misplaced focus on improving solely the quality
of the information provided — better data and more metrics — has limited the impact
of this risk information on critical executive decisions. Instead, ERM leaders should
focus on reducing the effort expended by executives in consuming and using risk
information in order to drive greater action on risk information.