Risk in review | Executive summary 1

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Risk in reviewDecoding uncertainty,delivering value2015 executive summary

Risk in review | Executive summary 2

When risk becomes reward:Driving performance and growth through proactive risk managment

Every year, PwC conducts a risk survey. This year, over 1,200 global business executives and leaders shared views about the risk climate, their companies’ risk management practices, and the key risks they’re worried about now and on the horizon. So what did we uncover? A dichotomy, with a core of gold.

Why not? For some, it’s fear that a robust risk management strategy would slow them down and prevent them from seizing opportunities. But our survey indicates otherwise:

The numbers don’t lie. Risk management leaders are fueling growth without jeopardizing their business. But how exactly are they doing it? Let’s find out.

Risk is everywhere in today’s business environment—external and internal, interconnected, growing, changing, and evolving.

Yet...

Companies are generally not responding to this riskier environment with improved risk management programs.

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3. The true risk management leaders—the 12% of executives we surveyed that demonstrate the most developed, proactive, strategically aligned approaches to risk management—reported significantly superior profit margins and annual profit margin growth than other companies.

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Risks are increasing dramatically and executives are constantly faced with making decisions to protect their businesses, while also trying to improve their financial performance. By integrating risk management into the business life cycle, these two objectives can easily come together to work in unison. Developing an effective strategy requires investment, but the payoff and competitive advantage can be enormous.

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– Dean Simone, PwC Partner and Risk Assurance Leader

Risk in review | Executive summary 41 Oxford Economics, World Economic Prospects: Oil Price Slump Boosts Growth Forecasts (January 2015).

Growth is here for the taking

Though volatility and uncertainty are on the upswing, so is the trend toward growth. Among the executives we surveyed, the overwhelming majority (76%) expect revenues to grow over the next two years. More money is landing in the pockets of global consumers, and the global growth forecast isup to 2.9% from 2.6% last year.1

The companies in our survey are undertaking a variety of strategies to pursue this growth (see graphic), but each of those strategies comes with its own risks—and our results suggest that some companies may not be striking the right balance between risk appetite and risk management. By focusing on aggressive growth without also developing a strong risk management program, these companies can leave themselves vulnerable to mistakes.

Developing new prod-ucts and services

Increasing marketingand sales

Penetrating new geographic market segments

Increasing focus on innovation

Applying newtechnologies

Penetrating newdemographic market segments

Mergers andacquisitions

Revisiting pricingstrategies

Re-aligning thebusiness model

Adjusting the company’s organizational structure to be more responsive and adaptable to change

56% 56% 54% 53% 48% 47% 43% 35% 35% 31%

The survey says: Respondent companies are taking diverse approaches to growth

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Growth and risk are intertwined

The actions companies take in pursuit of growth generally increase risk. But risk management leaders know better than to enter a minefield without a map. Instead of stepping toward an opportunity and just hoping it doesn’t explode, risk leaders approach their growth plans with a firm understanding of their risk appetite. They also take an enterprise-wide view of risk that helps them understand how all their risks interconnect—includ-ing those that could impact or catalyze other key risks to thebusiness.

This type of proactive, risk-enabled approach is especially important in light of the speed with which technology is evolving.The exponential growth of digital platforms has opened a new world of sophisticated cybercrime and privacy threats, and isrequiring established industries to confront unfamiliar technology risks when developing new products and operating in new global markets and regulatory jurisdictions. Meanwhile, new regulations are compelling new compliance needs, and third-party risks are growing as companies engage innovative but relatively less-established outsourcing vendors, contractors, and sub-contractors. Without a risk-enabled approach to growth, companies aren’t armed to take full advantage of the current growth climate without opening themselves up to significant threats.

Regulatorycomplexity

Talentavailability

Costpressures

Reputationrisk

Geopolitical/social unrest

Data security& privacy

Global economic shifts & uncertainty

Governmentpolicy changes

Emergingtechnology risk

Black swanevents

Macro challenge

Market challenge

77%

74%

69%

58%

66%

44%

69%

53%

59%

41%

The survey says: Respondents say the key threats to business performance and growth are...

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Risk leaders navigate throughrisk to opportunity

Risk leaders have learned how to flip the script.

Instead of seeing risk management as a roadblock standing in the way of growth, they’re using it as a tool to accelerate performance and drive growth. Among the companies we surveyed, those that are growing most quickly are nearly twice as likely to report they are developing sophisticated and robust risk management tools and processes.

And here’s the money quote: Over the past three years, 55% of risk management leaders recorded increased profit margins compared with only 43% of non-leaders, and 41% of leaders achieved an annual profit margin of more than 10%, compared with only 31% of non-leaders.

Risk leaders have increased their profit margins over the past three years

They understand the domino effect of risk, and incorporate risk complexities intostrategic, financial, and operational goals

Risk leaders have an integrated understanding of their own risk appetite across a range of areas

They’re increasingly taking a risk-enabled approach to growth

Risk leaders are posting greater performance while leveraging best risk management practices

The survey says: How risk management leaders win

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Where risk leadersget it rightFour leading practices thatdistinguish the best of the best

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1. Risk leaders understand that risks are interconnected

Leaders understand risk as a web of interlocking pitfalls and possibilities, and make business decisions based on an enterprise-wide view of risk that gives them a clear and realistic understanding of operational issues and market opportunities.

The ability to manage and reduce risks at each level of business, with both immediate and long-term benefits to the company as a whole.

Result

of the leaders surveyed (vs. 23% of non-leaders) are able to see how a threat to one business unit may threaten or affect others.

The survey says: How risk leaders comprehend threats and risk

of the leaders surveyed (vs. 27% of non-leaders) are able to take a comprehensive view of risk across relevant business functions when making decisions.

70% 73%

“When companies build a risk management ecosystem that helps them to optimize their business, they have more certainty around the decisions they make. And when you have certainty it helps you move more quickly, because you know what is coming next.”

– Jason Pett, PwC Partner and Internal Audit Leader

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2. Risk leaders align riskmanagement to the business

Good risk strategy equals good business strategy. The vastmajority of risk leaders (90%) have deep alignment between risk management and the company’s strategic planning process, compared with just 36% of non-leaders. Leaders also demonstrate greater cross-functional alignment, and leaders are more than twice as likely as non-leaders to leverage their risk management programs during the strategic planning process (78% vs. 38%).

With strategies aligned, executives are able to make confi-dent, rapid-fire business decisions informed by highlysophisticated risk evaluation.

Result

“Integrating risk management into the life cycle of your businessgives you the opportunity to do two things. First, it helps youunderstand the implication of risk at the point of decision ratherthan afterward. And second, it allows you to move very quicklyand confidently, knowing that you’ve anticipated the risk and areless likely to have made a mistake that could slow you down.” – Dean Simone, PwC Partner and Risk Assurance Leader

of risk leaders (vs. 36% of non-leaders) have deep alignment between risk management and the company’s strategic planning process.90%

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3. Risk leaders strive to beproactive, not reactive—theybring the right tools to the job

Forty-six percent of risk leaders say they spend more time calculating and preparing for risk than reacting to it (vs. just 21% of non-leaders), and to do so, they have armed themselves with a variety of sophisticated tools and techniques.

Businesses that are proactive with risk can grow sustainably in a volatile global marketplace.

Result

The survey says: Risk leaders have controls and practices in place to harness risk

can identify and forecast emerging risks(vs. 59% of non-leaders)

are building organizational resilience to risk (vs. 42% of non-leaders)

are monitoring key risk indicators (vs. 27% of non-leaders)

use risk ratings (vs. 62% of non-leaders)

have horizon scanning / early warning indicators(vs. 33% of non-leaders)

are engaged inscenario planning(vs. 33% of non-leaders)

conduct stress testing (vs. 30% of non-leaders)

96%

88%

80%

96%

81%

77%

75%

“When executives have the power to collect the right data and synthesize this data into actionable intelligence, they are empowered with a deeper understanding of their business and of the drivers that impact performance. We can now do things that weren’t possible a decade ago. This allows for much better decision-making.”– John Sabatini, PwC Principal and Risk and Compliance Systems and Analytics Leader

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4. Risk leaders know their risk appetite, and are willing to take chances

Risk leaders have a formal, well-understood risk appetite framework that clearly defines the level of risk the organization is prepared to accept in relation to its overall risk capacity.

Understanding their risk tolerances gives executives greater clarity and confidence about how their risks are being managed—and that gives risk leaders a higher appetite for risk than non-leaders.

Fast, confident, risk-informed decision-making can help companies compete more effectively in a rapidly evolving business climate.

Result

of risk leaders have a corporate risk appetite statement that is well communicated and understood (vs. 20% of non-leaders).68%

“Undertaking a systematic review that determines what aggregated level of risk a company is willing to take on—and ensuring that all business units understand those limits—remains a central tenet of risk management leadership.”– Brian Schwartz, PwC Principal and Risk Assurance Performance Governance, Risk and Compliance Leader

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Risk-enabled growth:Boosting performance through risk management

Risk accompanies growth at every turn, but management of risk should never slow the path to growth. Companies that take a risk-enabled approach to growth, linking business risk to their strategic imperatives, can drive efficiency and generate higher profit margins than their competitors.

According to this year’s Risk in review survey, only 12% of survey respondents have put in place the processes andstructures to make their companies true risk management leaders. The key to joining that group is a proactive approach that inte-grates risk management into the life cycle of the business, bring-ing a holistic, risk-enabled view to strategic decision-making.

“Business leaders see the landscape today as one of both threat and opportunity, in roughly equal proportions. To survive and evolve in this environment, companies need to prepare their entire organizations to take advantage of big shifts ahead of the competition.”– Dennis Chesley, PwC Global Risk Consulting Leader

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Inside the survey report

Explore PwC’s Risk in review to learn more about leveraging your unique risk appetite into stronger performance.

The report provides insightson topics such as: Additionally, you can:

• Identifying the risks worth taking

• Surveillance systems

• Heat maps and dashboards

• Ad hoc analytics

• Avoiding typical pitfalls

• Gaining a competitive edge

• Achieving long-term profits

• Interact with key data from the 147 respondents who logged higher profits and better risk management

• Learn how Ryan Zanin, Chief Risk Officer at GE Capital, manages a riskier world

• Learn about our three-tiered approach to avoid drowning in data

• Learn how risk officers can gain tools for creating an effective GRC framework that delivers results

• Benchmark your business

© 2015 PricewaterhouseCoopers LLP, a Delaware limited liability partnership. All rights reserved. PwC refers to the US member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. PwC US helps organizations and individuals create the value they’re looking for. We’re a member of the PwC network of firms with 169,000 people in more than 158 countries. We’re committed to delivering quality in assurance, tax and advisory services. Tell us what matters to you and find out more by visiting us at www.pwc.com/us.

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Are you prepared?

Dean Simone, PartnerUS Risk Assurance Leader

John Sabatini, PrincipalUS Risk Assurance – Risk and Compliance Systems and Analytics Leader

Todd Bialick, PartnerUS Risk Assurance –Third Party Assurance Leader

Brian Schwartz, PartnerUS Risk Assurance – Performance Governance, Risk and Compliance Leader

Jason Pett, PartnerUS Risk Assurance –Internal Audit Leader

Grant Waterfall, PartnerUS Risk Assurance – Cybersecurity and Privacy Strategy Leader

dean.c.simone@us.pwc.com267 330 2070

john.a.sabatini@us.pwc.com646 471 0335

todd.bialick@us.pwc.com973 236 4902

brian.schwartz@us.pwc.com202 729 1627

jason.pett@us.pwc.com410 659 3380

grant.waterfall@us.pwc.com646 471 7779

In a world of increasing risk, your executive decisions are only as good as your strategy and preparation.