This paper examines commercial and current trends in risk management, focusing on the growing interest among employers, lenders, insurers, and other stakeholders in assessing and mitigating risk. It discusses the rising threat of security breaches, computer crime, and the exposure of personally identifiable information, as well as the financial pressures these create for organizations and consumers. The paper also surveys current trends such as liquidity risk, market risk, and counterparty risk, and looks ahead to the future of enterprise risk management, including C-level risk oversight, comprehensive risk programs, and the potential for increased government regulation and third-party assessments.
Commercial interest in risk management is on the rise. Employers wish to hire healthy employees to cut absenteeism and productivity issues. Lenders want borrowers with long, productive lives. Advertisers, marketers, and drug companies seek to tailor material to target healthcare providers and patient populations. Health insurers want to avoid high-risk consumers. Educational institutions seek students with the greatest potential. Blackmailers attempt to extort payments from those with the greatest potential harm from disclosures. People dating want to obtain information on a partner to evaluate health and longevity (Hoffman, 2007).
There is a significant upward trend in client losses linked to security breaches that release personally identifiable information (Kelly, 2007). With the economy in recession, more and more consumers are unable to pay bills. These issues are causing significant losses for both companies and consumers who must absorb the financial consequences. Computer crime losses doubled in 2006 due to increasingly sophisticated hackers and laws that now require organizations to disclose security breaches and provide adequate security measures to protect personally identifiable information.
As blackmailers and hackers continue to develop craftier ways to access personally identifiable information for personal gain, companies are being challenged to invest more money in securing that information. One challenge organizations face involves insiders who have access to sensitive data in order to perform their job duties. Hiring practices have tightened in an effort to recruit more trustworthy employees with lower absenteeism and higher productivity levels, helping to hedge against losses resulting from breaches and hacking. Consumers are also being evaluated for health and financial standing to ensure that accounts are paid in a timely manner and to prevent future revenue losses.
Current trends in risk management center on liquidity risks, which involve funding, market, and counterparty risks (Faucheux, 2009). Securing the necessary funding for needed projects — such as higher security requirements and system upgrades — is becoming increasingly challenging for organizations. Market share can be lost as a result of security breaches and other risks that damage an organization's reputation. Counterparty risk — that is, the ability of consumers to pay bills and purchase goods and services — also presents growing challenges for organizations.
The future of risk management is facing increased emphasis (Heineman). Risk management is more essential to strategic objectives due to increasing volatility and complexity. Risk management capabilities are crucial to long-term growth and future profitability. Comprehensive enterprise risk management programs are being implemented and improved. C-level risk oversight functions are being established, such as the Chief Risk Officer. Investments in risk management are expected to increase.
"Regulation, enterprise programs, and C-level oversight"
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