THE US-BASED RISK and Insur ance Management Society (RIMS) has just released the findings of what it claims is the first truly in-depth study of enterprise risk management (ERM) practices. According to RIMS, its State of ERM Report 2008 “unequivocally substantiates the value of ERM for organisations of all types”. It also indicates that com panies that have greater risk man agement and ERM maturity levels enjoy higher credit ratings.

The study is based on data col lected from 564 corporate risk practitioners that assessed their risk management strategy by com paring their organisation’s activi ties against 68 best practice guidelines. It found that organisa tions that have embraced ERM have realised a concrete advantage in their risk management compe tency. Indeed, 93 per cent of organisations with formalised ERM programs in place made bet ter risk-informed decisions – a recognised competitive advantage over those that do not have an ERM program.

However, organisations that report they have an ERM program in place still fall significantly short of achieving managed or better risk maturity. Only 4 per cent of these companies achieved a better level of risk management competencyin all the competencies measured. This suggests that organisations may have a false sense about all that is required for an effective risk management program.

The study also links ERM to better business performance. There is a distinct correlation between companies that score higher against all the risk competencies and those that possess higher credit ratings. The same is true of low- scoring companies that, typically, possess lower credit ratings. As such, better-managed companies in terms of ERM practices benefit from better business performance.

“In order for organisations to capitalise on the strategic and tacti cal value creation enabled by ERM, management – from the board room to the front line – must play an active role in the risk management pro cess,” said Convergys Corporation senior director of risk management and chair of RIMS ERM develop ment committee, Carol Fox.

“This report identifies the fun damental requirements for man agement to build and maintain a resilient and sustainable organisa tion. Unquestionably, ERM truly is a lead indicator of performance.”