risk management practices

Building responsible and resilient supply chains

Supply chains have become global and highly complex. Building and maintaining a resilient supply chain is a key success factor for businesses operating in a fast-changing world.connected-globe-rgb-international

EY Climate Change and Sustainability Services (CCaSS) collaborated with the UN Global Compact on the study in an effort to better understand how companies are managing their supply chains in ways that support the objectives of the United Nations 2030 Agenda and Sustainable Development Goals (SDGs).  The UN Global Compact is the world’s largest sustainability initiative and EY has been a participant since 2009.

The report draws on business inputs across geographies, sectors and business models. CCaSS and Advisory Supply Chain and Operations professionals interviewed 70 clients globally to explore how they are embedding sustainability in their supply chains by managing risks and adopting new commitments around human rights, the environment and the well-being of communities in which they operate.

Overall, the study indicates that by improving environmental, social and governance (ESG) performance throughout the supply chain, companies can enhance processes, reduce costs, increase productivity, innovate, differentiate and improve societal outcomes.

Conclusions explored in the report include:

  • Companies are on a continuum from managing risks through creating shared value with stakeholders to achieving differentiation for their products or services;
  • Leaders are achieving competitive advantage in the supply chain through increased collaboration, technology innovation, greater efficiency and supplier diversity;
  • Mature supply chain models integrate buying and sourcing practices with product design and development to enhance sustainability results tied to their manufacturing and service delivery;
  • Currently, only a small percentage of companies have achieved leadership maturity levels that can lead to shared value with suppliers, enable suppliers to operate as an extension of the business and engage in meaningful, collaborative dialogue.

Based on interviews we identified several actions companies can take to further embed sustainability in their supply chains:

  • Assess materiality, to focus on the most pressing issues, taking UN Global Compact principles into consideration
  • Align resources, structures and processes to focus on supply chain sustainability across the organization
  • Train management and suppliers on market practices
  • Invest in diverse and inclusive supply chain partners
  • Stretch existing sustainability goals beyond direct operations, to include tiers of the supply chain
  • Deploy technology to increase accountability and transparency
  • Leverage buying power and influence to trigger shifts toward supply chain sustainability
  • Disclose supply chain information, beyond stand-alone sustainability reporting mechanisms

This post was written and published by EY, one The Risk Institute’s founding members, in August 2016. To view the original article or download detailed study findings, click here. 

A Snapshot of Risk Management in 2015

minton bernadette 130x195By Professor Bernadette A. Minton
Academic Director, The Risk Institute
Arthur E. Shepard Endowed Professor in Insurance
The Ohio State University Fisher College of Business 

 

As published on Columbus CEO’s CEO Live blog on May 20, 2015

In recent years, risk management has evolved into a more comprehensive and integrated practice.  Risk management was once viewed as only being done to meet regulatory requirements and to protect the firm against the negative effects of volatility in their business environment.  While those aspects remain leading catalysts for firms who increased risk management efforts over the last three years, a fraction of firms recognize risk management to be a source of growth.

Over the same three-year period, senior executives and the board of directors have become more involved in risk management processes. This integrated approach leverages collaboration across an organization to identify and evaluate risks and to proactively manage those risks to achieve corporate objectives and enhance shareholder value.

One of the primary goals for The Risk Institute at The Ohio State University Fisher College of Business is to create a greater understanding of how organizations can proactively leverage risk management to create value.  Given the varied roles that risk management plays in different organizations, it is important to hear from senior executives from both financial and nonfinancial industries about how they view risk management’s role in their organization. It’s also critical to understand how executives, if at all, integrate risk management into business decisions as well as structure their risk management function to support its role in the firm.

Organizations are increasingly impacted by risks that are more interconnected and ever changing. This means that the conversation about risk and risk management must continue to evolve and grow. It is with this goal in mind that The Risk Institute developed a comprehensive research initiative to survey senior risk management executives. The survey is designed to deepen the understanding of how U.S. companies structure their risk management practices.

The annual Risk Management Survey is one example of how The Risk Institute and its founding partners are committed to moving this conversation forward. In this inaugural survey, we provide a snapshot of risk management practices among a large and diverse set of U.S. firms.

As The Risk Institute unveils the findings from its inaugural 2014 Risk Institute Survey on Integrated Risk Management several things are clear.

 1) In order for firms to transition to a more integrated risk management approach, which views risk management as a source of value enhancing opportunities, it is important to choose a leader of the risk management functions who embraces this view and who does not see risk management as merely a defensive strategy. Equally important is choosing a leader who can effectively collaborate with other C-suite executives to leverage risk to enhance shareholder value.  Finally, the Board committee responsible for risk management also should share this view.

2) For firms wanting a more integrated risk management approach, it is important to include more business units/functions in the processes and not only rely on those functions related to finances and meeting mandated requirements. Aligning risk management with key organizational strategies will aid an organization to successfully develop a fully integrated risk management function that can leverage risk to achieve corporate objectives and enhance growth and shareholder value.

3) For firms to fully reap the benefits of an integrated approach, not only do they need to recognize a business process and analyze the risks of that process, they must also increase their efforts to have their analysis feeding back into the risk management of the firm itself. This “looping” process will allow firms to proactively manage the risks impacting their organizations and identify emerging risks to be leveraged or mitigated.

4) Given the changing nature of risks impacting firms, firms must continue to use a variety of techniques like best case/worse case and extreme scenario analyses, which can effectively evaluate these risks by including proprietary models and simulations.

5) As firms move from viewing risk management as a defensive strategy to a more fully integrated approach, senior executives and the Board must develop mechanisms to set the scope of risk-taking that are consistent with this latter view of risk management.

These findings afford some great insights and will enable us to investigate and address challenges in the practice of risk management so to advance the adoption of leading integrated risk management strategies.

To learn more and access the complete 2014 Survey on Integrated Risk management, visit: go.osu.edu/2014RiskSurvey