Risk Management is a waste of time! And of resources. And of effort. And of money. And...

Very often, the benefits of risk management are underestimated. Or, managers do not see any benefits of using risk management for their company. Statements as "Risk management only creates additional cost" or "Risk management does not create any revenues" are often heard. (Personally, I read such statements quite frequently, when receiving answer sheets within our empirical research projects.) This statements are then used as arguments for not spending effort, time, and money to set-up or develop risk management. Very well done!

But: The view mentioned above is proven to be wrong! Aon plc., together with Wharton School of the University of Pennsylvania, have developed a so-called 'risk maturity index' (details can be found on Aon's website). The latest report on the risk matury index, which uses data from more than 360 publicly traded companies, shows some interesting results - especially when focusing on the benefits of risk management.

Figure 1: Risk Maturity Classification; Source: Bourdon, T. W.: Aon Risk Maturity Index - Insight Report, November 2013, p. 6.

Based on a set of 40 different criteria, companies were classified by their answers into 9 different categories (see Figure 1). Only .7 % of the companies reached the maximum of 5 points on the index, and were classified as 'advanced'. However, more than 50 % of the companies show unsufficient capabilities for risk management - and are classified as 'basic' or 'initial/lacking'.

Figure 2: Stock Price Volatility by Risk Maturity Rating; Source: Bourdon, T. W.: Aon Risk Maturity Index - Insight Report, November 2013, p. 63.

Figure 2 shows, that in general there is a negative correlation between risk management maturity and the stock price volatility. Thus, companies with a state-of-the-art risk management fear far less volatility of their stock price than companies with a 'basic' or 'initial' risk management.

Figure 3: Implications of the Greek Fiscal Crisis 2010; Source: Bourdon, T. W.: Aon Risk Maturity Index - Insight Report, November 2013, p. 5.

It seems obvious that economic problems in a country or a region have implication on the profitability of companies. Thus, enterprises are affected by economic crisis. However, the report shows, that companies with a sophisticated risk management system in place are less affected by such a crisis than companies with a low risk maturity index. Figure 3 shows results focusing on the implication of the Greek fiscal crisis in 2010 for the stock price of enterprises. Again: The study shows, that a well-implemented risk management contributes strongly to the economic situation of a company.

Figure 4: Implications of the Japanese Earthquake 2011; Source: Bourdon, T. W.: Aon Risk Maturity Index - Insight Report, November 2013, p. 5.

Those statements also hold for the implications of catastrophes for companies. Figure 4 demonstrates how enterprises with a well-established risk management are far better off after the Japanese earthquake in 2011 than companies with a less developed risk management. In this case, we can also see how risk management can contribute to more or less stable and resilient supply chains.

The report 'Aon Risk Maturity Index - Insight Report, November 2013', written by T. W. Bourdon et al., can be downloaded from Aon's website: http://www.aon.com/risk-services/thought-leadership/report-rmi-insight-nov-2015.jsp.