Risk Managers’ Outlook Improves, Somewhat

Commodity prices still top their concerns, but their overall anxiety has fallen.

Risk managers have loosened up a bit. Emphasis on “a bit.”

The financial crisis is still fresh in memory, and they have plenty of worries to keep them up at night. But a fairly new index that measures risk managers’ concerns has declined since last year, suggesting their optimism is growing.

For now, their anxieties are on a somewhat smaller scale compared with the beginning of 2010. “The particular areas driving [their outlook] at the moment are big concerns like energy prices and housing, and not a general fear of another systemic blowout,” says Chris Donohue, head of research and educational programs at the Global Association of Risk Professionals (GARP), which began surveying its members for the quarterly index in the first quarter of 2010. Most of the respondents work at financial-services firms.

For the first quarter of 2011, the index reached its lowest level so far at 107.81, compared with 109.27 in early 2010. The trade association’s survey asks risk managers to rate the current effect that eight risk factors could have on a systemic risk crisis in the United States (see chart below). Except for risk managers’ heightened concern over commodity prices — the composite measurement for this risk has risen 22% since last year — their worries about other factors have declined or remained steady compared with a year ago. “Risk sentiment had peaked for a long time, and you’re seeing a slow drift downward,” says Donohue.

Risk managers' 8 concerns

GARP warns, however, that looming issues could once again raise risk managers’ anxiety levels. Potential problem areas include the weakening U.S. dollar, stagnating housing markets in some areas, and continuing geopolitical unrest overseas.

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