Organizations incurring high costs because of missing risks in their strategic initiatives: Gartner

Organizations are incurring high costs because of missing risks in their strategic initiatives, according to Gartner’s survey of more than 382 strategic initiative leaders. For an average USD 5 billion revenue company, it amounts to USD 99 million annually in opportunity cost from delayed new product launches alone. Initiatives where risks are not surfaced and mitigated in a timely fashion are delayed by an average of five weeks per year.

Moreover, in a related survey of 111 emerging risk management (ERM) leaders just 6% felt that their organization’s risk response was timely during strategic initiatives.

“These findings show that risk response usually is not timely,” said Emily Riley, senior principal, research in the Gartner Audit and Risk practice. “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 experts looked at how strategic initiatives performed against several measures and how this was affected by the timeliness of risk responses (see Figure).

Figure: Opportunity Costs from Missing Risks

“The performance benefits of a timely risk response stand out clearly,” said Riley. “There’s a business opportunity here because ERM leaders expressed their desire to be more involved in supporting strategic initiative success.”

76% of ERM heads said they wanted to increase the proportion of their time they spend on strategic initiatives. More than half said that their involvement should come at the earliest stages of a strategic initiative. Yet currently just 11% feel they are involved before an initiative’s execution.

Information Roadblocks

“The problem we often see is initiative teams are not getting the information they need to act on risks in a timely manner,” said Riley. “This is one area where ERM teams can add value.”

This can have several root causes. Sometimes many individuals are involved in an initiative without clear accountability to one another. There is also often a sensitivity to candidly sharing information about threats to high stakes projects. Another common cause is a focus on performance metrics that overshadows forward-looking considerations.

“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 consider leading indicators of project success,” said Riley.