The Biggest Challenges Facing Professional Services Firms: The Importance of Risk Management

Our Global Risk Landscape 2022 survey provides a unique snapshot of how companies worldwide are responding to risk in these uncertain times. Every business will want to benchmark itself against others in its industry. But there is one sector that deserves special attention: professional services. 

Here, professionals deal with risk every day: legal risk in the case of lawyers, financial risk in the case of accountants, structural risk in the case of architects. So, what does this year’s Global Risk Landscape say about their attitudes to risk?

The biggest surprise in the survey comes from professional services respondents’ views of how their firms react to risk. Only 2% of this group said their businesses were risk averse, well below the survey average of 14%.

Similarly, 32% said their businesses were happy to take risks ‘when necessary,’ higher than the survey average of 29%. And 15% claimed their firms were ‘risk welcoming,’ above the average of 12%. Are today’s professional services firms staffed by risk-taking firebrands? This would seem unlikely. 

Instead, a more plausible explanation is that professional services firms have a slightly different view of risk than other sectors. When risk minimisation is what you sell to your clients, you may not consider many traditional threats to be of importance. 

The Effects of the Pandemic 

This idea is borne out by the things that caused the most pressure for professional services firms during the pandemic. Rather than worrying about interruptions to operations, the main preoccupation for the sector was low employee satisfaction and wellbeing, cited by 47% of respondents. 

Other concerns included cultural issues such as low productivity and flexibility, mentioned by 43%, and lack of technology and digital transformation capabilities, cited by 37%. 

Nevertheless, 40% said they were proactively using technology to address risks, with 60% having adopted advanced risk assessment tools, compared to 37% that considered their firm’s use of IT systems to be reactive. 

Time Critical Risk Management 

Given that addressing risks often requires rapid decision making, it was heartening to find there was no predominant barrier to quick decisions. Less than a quarter (23%) of the sample said delays could occur by prioritising cost over the big picture and a similar percentage blamed trying to predict end positions.

What risks, then, have professional services firms failed to spot? The most cited threat was that of an economic slowdown—but that only caught 20% of the sample unawares, so it is a safe bet you can carry on trusting your professional advisers.  

ESG Risk Management

Professional services firms are used to managing their day-to-day commercial risks, but ever-increasing regulation and geo-political uncertainty are forcing our clients to become significantly more risk aware. This enhanced risk awareness is manifesting itself throughout their business but particularly in their approach to ESG issues. Understanding, documenting and mitigating risk is a key part of the Governance element of ESG and recently we have seen a number of firms undertake risk reviews, introduce risk registers and implement risk control frameworks as part of their Governance processes.

Read more about the Global Risk Landscape results here or visit our risk advisory services page here.

This content was originally published by BDO United Kingdom.