“3X EBITDA” – Ernst & Young
“2X Price to Book Value” – PwC
“3-5% Enterprise Value” – Wharton School of Business
“1-3% lower insurance costs” – S&P
And it goes on and on like this. On this blog I spend a lot of time talking about how enterprise risk management makes companies better, more profitable, more competitive and a safer bet for stakeholders. Lucky for me, I am not the only one who thinks so. Every major consulting firm, most of the major investment banks, many of the ratings agencies and a huge number of leading organizations around the world have also been supporting ERM as a way to drive value for business. The above stats are just a glimpse of the bottom line impact a more integrated approach to risk management can have on firms.
In my experience this focus on the real, tangible and credible impacts ERM has on company financials is key to the development of risk management. Why? Because the more that effective risk management is seen to impact financial goals and objectives, the more ERM is seen as a driver of financial improvement, the more attention the executive team and the board will pay to the process. Almost every report on the implementation of ERM suggests that a key component is executive support. However, speak with enough risk managers and you begin to understand that getting that support is difficult. A recent Deloitte study found that despite the attention ERM gets, only 25% believe it is the responsibility of the CEO, meaning 75% put risk management into the hands of someone else. Now, this is improving year on year, and I believe it’s based on the bottom line stats like those above.
In the global economy we have today, who wouldn’t want 3X the EBITDA. Who isn’t interested in their enterprise value? Those of us in the Risk Management industry need to get better at translating what ERM can do into financial, business metrics. Those are the things executive teams are interested in, and those are the things which will get them excited and involved. And in case you need more ammunition for your discussions with the Board, many of the same reports also suggest that ERM does the following:
- Drives stakeholder confidence
- Improves relationships with regulators and communities
- Reduces uncertainty
- Mitigates surprises
- Reduces litigation costs
- etc, etc, etc…
In the end, in this economy, almost all organizations are bottom-line conscious. The great news is that ERM can significantly enhance your bottom line performance, make your company more competitive and help drive goals and objectives.
So how is your company using ERM to drive bottom-line results?