In the aftermath of the financial crisis, 96% of organizations believe they can improve risk management, a recent Ernst & Young survey of executives finds.

The survey of more than 500 executives around the world, conducted by the Economist Intelligence Unit this summer, included a variety of firms in the banking, capital markets, asset management and insurance sectors, among others. Ernst & Young compiled the survey results in a report entitled “The Future of Risk.”

Among the risks currently facing the organizations, financial risks topped the list. More than half of respondents said their financial risks have increased during the past 12 months. Other risks on the rise include strategic risks, compliance risks and operational risks.

To deal with such risks, many organizations are enhancing their risk management efforts to be more aligned with their overall business strategy and objectives, according to the survey.

“This financial crisis has taught us that unidentified risk can lead to catastrophe,” said Ernst & Young partner Tanya Khan. “Clearly, leadership in Canada and around the world must refocus and intensify their efforts to ensure effective risk management is tied directly to business priorities.”

Despite the economic downturn, nearly 40% of survey respondents said they plan to strengthen their risk management capabilities by adding more staff or financial resources. Another 61% of companies plan to maintain their current risk investments.

“Given the current cost-conscious mentality, the fact that nearly all companies want to improve their risk management efforts and intend to maintain or increase their current levels of investment underscores the growing awareness of the value of sound risk management,” the report says. It estimates that companies spend roughly 4% of revenue on risk management activities.

The executives polled said that risk management activities provide such benefits as better understanding of key risk areas, the next most common responses were improved compliance with regulations, and overall improved business performance.

The survey also revealed that risk management is becoming an increasingly complex undertaking for organizations. Nearly three-quarters of respondents said their organization had seven or more separate risk functions.

But more than 80% of companies admitted to having gaps in coverage between these risk functions, indicating a lack of coordination.

“Departments tend to assess how risk affects them, not the entire organization,” Khan said. “Risk management needs to move out of its silo, and reach across an entire organization if it’s going to work well.”

IE