Risk reporting and corporate performance management: A missing link

Before the global financial crisis back in 2007-2008, risk reporting may not have been on the plate for many companies and organisations around the world. However, since then, there has been “increased attention to the formalisation of risk management” (CGMA, 2012). But is that enough for Vietnamese businesses, given the fact that many have gone bankrupt or been caught up in legal entanglements?

Firstly, risk management is still in its infancy stage for Vietnamese companies, although discussions around the issue have become more frequent. Some of the most commonly cited risks are:

• Market risk: relating to exchange rates, stock price, interest rates etc.
• Credit risk: relating to the ability to clear debts
• Operational risk: relating to internal processes and impacts of external factors
• Revenue risk: relating to demand/supply balance and competitors

Recently, however, two types of risks that are in the spotlight are strategy and compliance risks. In terms of strategy risk, Vietnamese companies have mostly been talking about risks that would affect their strategies rather than the risks of those strategies themselves. Compliance risk is also a hot topic as Vietnam is still actively integrating with the world.

Secondly, many experts have emphasised the importance of having risk-aware top management or board of directors in order to lead the way in developing a “risk culture”. That way, not only can companies have more formal risk assessment processes, but they can also integrate risk management process with corporate performance management.

As noted by CGMA in their study on European companies, efforts have been made to integrate risk and performance management for better decision making. This is demonstrated by the facts that:

• There are companies that integrate risk and performance in reporting to the board
• Internal auditors play a great role in risk management
• “It is considered good practice to align the timing of risk reporting with that of budgeting and strategic planning”

Vietnamese companies could learn a lesson or two from their Western counterparts, especially now that anyone anywhere can feel the impact of a global financial crisis. Stay tuned for our next blog entry where we will discuss more about the situation in Vietnam and identify points of caution when it comes to risk management.

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In the meantime, read about what European companies have been doing in the efforts to manage risk in the aforementioned CGMA study.