Headlined ‘Ground-breaking’ link between risk management and profitability, The Wharton School of the University of Pennsylvania, includes “ground-breaking findings about links between board’s oversight of risk, financial performance and the volatility of a company’s share price,” the insurer Aon, which sponsored the effort, said.
Aon released its latest Risk Maturity Index Insight Report and it reveals a direct link between profitability and advanced risk management practices.
According to the article in Insurance Business, Marcus Vaughan, regional lead of the Aon Risk Maturity Index for Australia said of the findings: “The evidence is clear: there is a direct positive correlation between advanced risk maturity, an organization's understanding of risk management practices, and enhanced financial performance when considering key metrics such as Return on Equity and Return on Assets. This in turn speaks directly to directors’ obligations to maximize shareholder value.”
Australia leads the way internationally when it comes to understanding and managing risk at the appropriate level, the report found. the report continued.
The Aon/Wharton School report puts a value on risk management by comparing organizations with high risk ratings to those with low rating, both on price volatility and return on equity performance.
The article states that The report found that companies with the highest rating on the risk maturity index, a 5.0, experienced share price volatility 34% lower than those with the lowest score available, a 1.0.
The highest rating also resulted in a 42% return on equity performance compared with a negative return of -23% for companies at the lowest end of the spectrum.
The entire article may be read at http://tinyurl.com/q4aspy8.