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What’s the cost of missed risk?
According to new research, there is a substantial opportunity cost when big businesses have to delay product launches due to missed risk.
Jerome Doraisamy
A new survey of 382 strategic initiative leaders from Gartner has found that, for a company with an average revenue of $5 billion, there is a cost of $99 million annually in opportunity cost from delayed new product launches alone.
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Where risks for new initiatives are not surfaced and mitigated in a timely fashion, there is a delay of five weeks per year on average.
This follows a recent Gartner survey of 111 emerging risk management (ERM) leaders, which found that only 6 per cent of said leaders feel that their organisation’s risk response is timely during such strategic initiatives.
“These findings show that risk response usually is not timely,” said Gartner audit and risk senior principal Emily Riley.
“But they also show the huge cost of an untimely response. The recent COVID-19 pandemic illustrates the need for an agile response to unexpected risks.”
Gartner examined how strategic initiatives performed against given measures and how that performance compared against the timeliness of risk responses: 55 per cent of initiatives that were completed ahead of schedule had timely risk responses, compared to just 25 per cent without a timely risk response; 38 per cent of projects that came in below the original budget had timely risk responses compared to just 22 per cent of projects that didn’t; and for initiatives that achieved more than 90 per cent of their objectives, 58 per cent had timely risk responses in contrast to 40 per cent that didn’t.
“The performance benefits of a timely risk response stand out clearly,” said Ms Riley.
“There’s a business opportunity here because ERM leaders expressed their desire to be more involved in supporting strategic initiative success.”
The research noted that 76 per cent of ERM heads said they wanted to increase the proportion of their time they spend on strategic initiatives, and more than half said that their involvement should come at the earliest stages of a strategic initiative. That said, presently just 11 per cent feel they are involved before an initiative’s execution, Gartner added.
“The problem we often see is initiative teams are not getting the information they need to act on risks in a timely manner. This is one area where ERM teams can add value,” said Ms Riley.
“ERM’s role should be to connect initiative teams with subject matter experts, to facilitate opportunities for anonymous sharing of concerns, and to develop risk indicators that are considered leading indicators of project success.”
