The Journal of Risk and Insurance has released “The Valuation Implications of Enterprise Risk Management Maturity” study, the first wholly independent research project that confirms the value connection of mature enterprise risk management practices in organizations. Published online in March, the peer-reviewed study finds that organizations exhibiting mature risk management practices realize a value growth potential of up to 25 percent.
Based on their findings, the authors report that “firms that have successfully integrated the ERM process into both their strategic activities and everyday practices display superior ability in uncovering risk dependencies and relationships across the entire enterprise and as a consequence enhanced value when undertaking the ERM maturity journey.”
Using data from RIMS Risk Maturity Model (RMM) gathered over the period from 2006 to 2011, Mark Farrell, the paper’s author and the Actuarial Science & Risk Management Programme Director at Queens University Management School of Belfast (QUMS) and Dr. Ronan Gallagher of the University of Edinburgh Business School, provided evidence through this research that firms that have reached mature levels of enterprise risk management attributes exhibit a higher firm value. The broad data set encompassed publically traded organizations from a variety of industries. Nearly 50 percent of the data tabulated by the researchers were submitted by RIMS members.
“Enterprise Risk Management is a growing area of interest for academics, especially in the post financial crisis world,” said Mark Farrell. “We wanted to undertake a valuation maturity implication study on ERM and approached RIMS and LogicManager to provide data for the study, given the extensive ERM maturity model they had built and collected valuable data on over a period of time. The model and data provided key insights into this emerging academic field that have important practitioner implications in terms of where ERM focus should be directed to help extract value, from an ERM program.”
RIMS Risk Maturity Model for Enterprise Risk Management™(RIMS RMM), developed in 2005 by risk professionals and LogicManager, is a free assessment tool for risk professionals and executives to develop and improve sustainable enterprise risk management programs. This online resource allows organizations to score their risk programs and receive an immediate downloadable report. The report, which provides information not only on current maturity levels, also offers ideas on what it may take to achieve a higher level of maturity in each of seven attributes.
“One of the biggest challenges in implementing an enterprise risk management program is articulating the value that it brings.” says Carol Fox, RIMS director of strategic and enterprise practice. “This research makes that value link quite clear. Although the study necessarily focused on publicly traded companies, the value proposition of enterprise risk management applies to not-for-profits and the public sector as well. In highlighting this research, we hope that more organizations will take advantage of the RIMS Risk Maturity Model to improve their risk practices and, in turn, create additional enterprise value.”
“Boards and ERM Committees now have an actionable internal roadmap and a corresponding return on investment measure to improve their enterprise risk management maturity from whatever level they are at today,” said Steven Minsky, CEO of LogicManager and developer of the RIMS Risk Maturity Model.
To access “The Valuation Implications of Enterprise Risk Management Maturity” research study, visit http://onlinelibrary.wiley.com/doi/10.1111/jori.12035/abstract.
Those interested in taking the RIMS Risk Maturity Model self-assessment to determine the maturity of their enterprise risk management programs can visit http://www.rims.org/RiskMaturityModel. RIMS membership is not required, but you will be asked to register before free access is granted.