Risk Reporting That

Drives Action: The Path

to Reducing Executive
Effort

Overview
The increased speed of decision making to exploit growth in different markets has
made it even more critical for heads of ERM to share risk information in a manner
that allows executives to make well-informed decisions. While the traditional focus
on information quality has its merits, our research shows that the ease with which
executives can consume and act on ERM’s reports and information is more likely to
drive action.

Key Findings

■ ERM’s risk information doesn’t sufficiently influence executives’ decisions.

■ Most heads of ERM see better information quality as a catalyst for greater influence
on executives’ decisions.
■ Reducing the effort executives need to consume and act on ERM’s information is
likely to have a greater impact on decision influence.

Recommendations

To increase the impact of their risk reporting, Heads of ERM should:

1. Acknowledge the importance of executive effort required to consume and act on

risk information.

2. Make risk reports easy to consume by reducing the amount of information delivered
and using an easy-to-understand format.

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3.   Identify key strategic initiatives to make risk information relevant to executives’
priorities.

4. Align risk information and other information flows to the executive risk committee.

In a recent survey, nearly 80% of ERM heads list increasing the impact of their risk
reporting as a top priority for 2018.* The achievement of this goal, as per heads of ERM,
will not only help ERM achieve greater influence on decisions made by members of the
executive risk committee but will also increase the consideration of risk information in
the course of an organization’s day-to-day operations and major strategic decisions.

Decision influence, as defined by ERM leaders, comprises three discrete outcomes

during meetings when the executive risk committee is presented with risk information
(see Figure 1):

1. Executives being engaged by ERM’s risk information

2. Executives agreeing that the information needs to be acted upon

3. Executives collectively identifying the required action steps

Figure 1: ERM’s Goal for Improved Reporting to Executives

Components of decision influence.

However, despite ERM leaders’ near-unanimous agreement on their goal, only a few
have been able to regularly achieve decision influence through their risk information.
Seventy-seven percent of ERM leaders still believe that their information fails to
achieve at least one of the three outcomes that lead to decision influence.

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This study is the first in a series of three research papers that will teach heads of
ERM how to increase the impact of their risk reporting, ensuring that risk information
drives action by members of the executive risk committee. All three papers are
informed by our annual strategic research titled “Risk Reporting That Drives Action.”
While this paper explores the perceived and actual challenges associated with making
risk reporting more impactful, the other two provide actionable guidance from ERM
practitioners on how to make risk information more actionable.

Costs of Inaction
The goal to influence executive decisions to account for risk information remains
worthy. The lack of decision influence, which manifests in executive inaction on critical
risk information, can be costly for organizations.

For instance, six months before the breach that affected the records of
nearly 148 million people, the leadership at Equifax was informed about an
application vulnerability that exposed the company to malicious actors. However,
the management team failed to act on this information, and as a result of the
breach, Equifax lost approximately $4 billion in market value and has since spent
approximately $90 million in a cleanup exercise.

In another example, a company’s executive committee approved a product launch

that exposed the business to a geopolitical risk that several of ERM’s risk assessments
had warned about.

These examples become even more consequential in a business environment where

executives are feeling greater pressure to act where there is opportunity and are more
likely to make bold bets. For the first time since the last recession, there is synchronous
growth across the globe, and as countries start growing quickly, CEOs are ready to
take a lot more risk. There is tremendous growth in the proportion of first movers, or
“pioneers.” Even though almost half of CEOs want to be first movers, most of them
will fail while embarking on risky strategies, making it critical for ERM to be involved
and increasing the relevance of its risk information.

However, it is these very changes in the business environment that are making it
even harder for ERM to get its message across to executive management, leaving
organizations exposed to the repercussions of ill-informed decisions.

Most Blame Poor Quality Data and Insights

Most ERM leaders believe that inaction on their information is a consequence of
the quality and integrity of the data used to inform their insights. A perception
remains that using more quantitative risk information and increasing the use of leading
indicators will increase the decision influence of their risk information.

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201587656
However, our research suggests that increasing the quality of information, while
important, will have a diminishing impact on the propensity of executives to act
upon the information. The reality of executives’ environment and decision-making
frameworks means that better-quality data or information will often not get them to
take a required action.

Lessons From Across the C-Suite

Reality of Executives' Environment How Executives React

Need for Speed Executives prefer easily accessible and
current inforrnation over delayed, but
Executives rnust make faster decisions to highest quality, inforrnation.
win in the new environment 
Cognitive Biases Executives rnore readily respond to
inforrnation that they can relate to their
Cognitive biases skew decision outcomes. irnrnediate priorities.

Multiple Sources Executives will rely on their rnost trusted

sources if they find discrepancies
Executives receive their inforrnation frorn between different sources.
several sources.

Why Better Information Quality Isn’t Always the Right Answer

Source: Research into executive decision making conducted by our Strategy, Market
Insights, Quality and FP&A Leadership Councils.

Executives are not only required to make faster decisions to take advantage of
fleeting business and growth opportunities but also must consider multiple sources
of information when making these decisions. In addition, they have to contend with
their own cognitive biases when evaluating this information to make relevant and
well-informed decisions. This means ERM’s traditional way of thinking about its risk
information, and how that fits into executives’ decision-making frameworks, needs to
be updated if it is to drive greater decision influence.

What Drives Decision Influence?

Our research discovered that more than information quality, the effort that executives
must expend to consume and take action on risk information drives decision influence
(see Figure 2).

Our analysis revealed three key components or actions that ERM leaders must take
to reduce executive effort:

1. Increase Ease of Consumption:  Use compelling visuals and clear and concise
language to help executives easily understand and interpret risk information.

2. Achieve Decisions Relevance: Gain insight into executives’ priorities and upcoming

decisions to make risk information more relevant to executives’ needs.

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3. Align Information With Other Sources:  Partner with other functions in the
organization to prepare a consolidated report using a standardized format.

Figure 2: Relationship of Individual Drivers With Decision Influence

Reducing executive effort leads to a greater impact on executive action than improving
information quality alone.

These three drivers are not only individually more effective at achieving decision
influence, but also, when done together, much more likely to have a greater impact on
decision influence than improving the quality of information alone (see Figure 3).

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Figure 3: Relationship Between Decision Influence and Timely Management Action

Reducing executive effort increases likelihood of management action on risk information.

Conclusion
Driving greater action with the use of risk information has been a goal for a vast
majority of ERM functions. However, a misplaced focus on improving solely the quality
of the information provided — better data and more metrics — has limited the impact
of this risk information on critical executive decisions. Instead, ERM leaders should
focus on reducing the effort expended by executives in consuming and using risk
information in order to drive greater action on risk information.

About This Research

This research is drawn from our larger study on improving risk reporting. As part of
this research initiative, we collectively surveyed and interviewed more than 200 heads
of ERM to identify the factors and approaches that drive a reduction in executive effort
when receiving ERM’s risk information.

* CEB 2018 Risk Management Agenda Poll.

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