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Prof. Dr Fred Wagner presented the study “Risk Management in Industrial Enterprises” at the 2018 GVNW Symposium. Is risk management actually worth it?

Companies deal with “Black Swans” as part of their risk management. When properly in place, it allows them to react to unforeseeable events faster and more appropriately. But how is risk management currently applied in industrial medium-sized businesses in Germany? And what are the benefits for the companies? A current study provides answers.

Under the patronage and personal cooperation of Dr Fred Wagner, Institute of Insurance Science at the University of Leipzig, the study entitled “Risk management in industrial enterprises – the value for medium-sized companies” was carried out by V.E.R.S. Leipzig GmbH and the German Business Association of Insurance Policyholders (Gesamtverband der versicherungsnehmenden Wirtschaft, GVNW) with support from the Funk Foundation. Initial results were published in September as part of the 2018 GVNW Symposium.

The aim of this study was to analyse risk management in medium-sized businesses, to compare existing concepts and to highlight areas with potential for further development. “We wanted to conduct an empirical survey,” says Prof. Dr Wagner. “Risk management is by no means a new term, but there is no prevailing concept of what it means.” And thus this study also demonstrates that the ways of designing risk management systems are as varied in German medium-sized businesses as the structures and the corporate landscape are in this sector.

The cost-benefit ratio

Dr. Wagner

Establishing a corporate risk management system can support companies in the implementation of their strategic objectives. Establishing such a system is always costly which raises the issue of the cost-benefit ratio of a risk management system. This is also covered in the study. Prof. Dr Wagner: “We tried to determine the added value that risk management brings to the company. And how is this added value actually measured? If it is not measured, it can hardly be conveyed. One result of the study is that there is probably still a lot of potential here.”

Risk management as value-based corporate management

The role of risk management is to optimise the opportunity-risk profile of a company in line with corporate strategy. “Risk management does not mean eliminating every possible risk as far as possible,” explains Prof. Dr Wagner. “Then you would also sacrifice the opportunities. Risk management serves the purpose of creating a healthy balance between opportunities and risks. Bearing and taking risks for the sake of opportunities – if there are sufficient opportunities. Opportunities are then hopefully reflected in an appropriate return. So risk management is actually value-based corporate management. In principle, risk must always be considered in connection with opportunities and returns.”

Opportunity for positioning as added value

Studie_Riskomanagement

A major reason behind the study was to generate added values for the target group. Therefore a set of 50 questions was prepared, clarifying the issues and topics relating to risk management in medium-sized businesses. For many of the companies surveyed, participating in the study itself was a means of acquiring a considerable amount of knowledge. “Several subjects came up here, which I’m dealing with for the first time, others I will deal with afterwards,” was the feedback from participating risk managers. “The greatest added value is of course the result of the study,” says Dr Wagner. “A company can now rank itself to see how well it is positioned in terms of risk management challenges.” The study was first distributed to participants and presented at the GVNW Symposium. A broader market will also have access subsequently. The authors of the study are already considering where further analysis and empirical research could be done.

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