Fifth of six parts

Managing risk in uncertain times

PERIODS of financial and economic turmoil intensify business risk and highlight the changing role of risk management. Those companies that will stand strongest during this downturn will be those that integrate risk management as a more comprehensive part of corporate strategy.

Current conditions are likely to increase the risks associated with:

• Mismanagement, compliance breaches and fraud;
• Customer/supplier consolidation;
• Credit defaults;
• Regulatory, tax and market changes;
• Forecasting and cash flow—decision-making risk.

Now more than ever, business needs to understand their current and potential risk exposures and give them a high strategic priority. As recent market events have highlighted, treating risk management as just another business process is not tenable.

Things to do now

1. Risk management is a priority

When times get tough, risk management too often falls down the C-level agenda. This can be a vital mistake. Turbulent times require the evaluation of any dedicated risk management and internal audit functions to consider if they need additional powers and resources. Risk reporting to the board and senior management needs to be at its most comprehensive during turbulent times.

2. Review the changing conditions

With market conditions changing so rapidly, it is essential to review the organization’s existing risk profile and consider how it can be adapted. This may include assessing the organization’s main compliance and disclosure obligations to ensure mechanisms are in place to fulfill these obligations. An assessment of vulnerability to risks arising from current business conditions, including “market risk” and “counterparty risk,” is also crucial.

3. Know your customers and suppliers

Failure to recognize how the current climate is impacting your customers and suppliers could leave the organization exposed to the increased risk of bad debts. Identifying those that will prosper or fail is a hard risk, but essential in safeguarding your own business. Having too much business concentrated on one supplier or customer can be catastrophic if it fails.

4. Evaluate the risk culture

IN the current economic environment, it’s time to get back to basics. Senior leadership needs to reinforce a risk culture within the organization. This starts by setting an appropriate tone at the top, reassessing risk-management practices across the organization and cultivating the requisite risk-management skills. A culture and climate must exist for openly communicating risk within the organization.

5. Ensure an integrated approach

Risk-management processes are strongest when they are linked to company strategy and embedded in the operations of the business, enabling insights and best practices to be shared. The leadership team should establish an enterprise-wide framework within which risk can be measured, reported and managed.

6. Recognize the risk of fraud

Tougher economic times mean that employees have greater motivation to commit fraud, a practice that is particularly prevalent in procurement divisions, payroll and online-payment systems. It is timely for organizations to reappraise the threat of fraud and earnings manipulation, and the effectiveness of current arrangements for its prevention, detection and investigation.

7. Risk-based scenario planning

In tough times many organizations err on the conservative side of what business conditions may prevail. A brainstorming session to stretch scenario planning will give the organization faith in its ability to respond to the changing market conditions. By including risk management in the strategic development process, “what if” scenarios can be considered and contingency plans developed, also providing management with a degree of certainty.

(This article is an excerpt from a thought leadership document entitled “Succeeding in Turbulent Times: A guide to navigating business survival in an uncertain and unfamiliar economic environment” by KPMG International.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. The views and opinions expressed herein are those of the authors and interviewees and do not necessarily represent the views and opinions of KPMG International or KPMG member firms.

For comments or inquiries, please e-mail Roberto G. Manabat at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .)