Responding to the 2019 Gartner Strategy Agenda Poll, 60% of corporate strategists cited slow strategy execution as their biggest challenge for the year — and that was long before the degree of disruption seen during the COVID-19 pandemic. Now, businesses are all resetting their business models to some degree, and senior leaders need execution at speed. Enterprise risk management (ERM) can help.
The project execution benefits might surprise those who see ERM as a potential drag on execution and speed
ERM can help in strategy setting, because it clarifies and formalizes the enterprise position on certain risks and how they threaten strategic objectives like business growth. But ERM can also benefit execution by enabling more timely risk response.
“Many executives fail to consider how and when to involve ERM in new strategic projects,” says Emily Riley, Senior Principal, Research, Gartner. “But our research shows that initiatives with a timely risk response performed markedly better across a range of success metrics.”
Broad business benefits of ERM
Noted in the Gartner survey of 388 strategic initiative leaders, the average opportunity cost of an untimely risk response for new product launches in a company with $5 billion in revenue was $99 million or 5 weeks of delay.
A timely risk response also:
- Increased the satisfaction of senior stakeholders with projects. Eighty-four percent were completely satisfied when the risk response was timely, versus 41% when the risk response was delayed.
- Kept projects on track. Of projects with a timely risk response, just 44% ever fell behind schedule and 55% were completed ahead of schedule. Of those without, 80% were late, and only 25% finished early.
“These project execution benefits might surprise those who see ERM as a potential drag on execution and speed,” says Riley. “Another aspect of our study was to look at why timely risk responses drive better outcomes, and how ERM can facilitate this.”
The research shows that involving the ERM team at an early, planning stage of an initiative tended to be less impactful. In part, ERM should remain involved at later stages to ensure that initiative teams are well-equipped to sense and respond to risks that emerge during project execution.
Facilitate discussion of risks
ERM teams have specialist understanding of risk management, so can provide higher-quality data about risks to an initiative — and ways in which an initiative might impact other parts of the business.
Yet very few ERM teams can successfully provide forward-looking and predictive risk information about when risks might arise in a project or getting leaders to pay attention when they do. Therefore, they should not try to get involved in project planning and focus instead on helping teams to sense and respond to risks as they emerge.
Sense and respond
“The ERM teams that drove the best risk outcomes ensured that initiative teams were in a good position to recognize and handle any unexpected risks that emerged. They didn’t necessarily see everything coming at the start of a project,” says Riley.
A key learning was that strategic initiatives, by their very nature, can foment barriers to good risk management. Often they involve disparate teams of individuals from across an organization, which can slow information flow.
The projects are regularly high stakes and individuals are therefore sensitive to candidly sharing information about threats to its success. Also, project assessments are commonly weighted toward performance metrics rather than more forward-looking considerations.
By unlocking information traps and setting guideposts for action — making sure they have equipped initiative teams with the tools and processes they need during execution and establishing clear guideposts for action, ERM teams can have such a significant impact on an initiative’s success.
Read more: Drive Faster Action on Emerging Risks