Miami University researchers study effect of quantification in risk management reports

Risk and Insurance Management Society (RIMS) Inc. and Miami University’s Farmer School of Business announced this week the results of a study on the effect of using quantification within risk management reports.

Risk professionals “must consider the types of risk and underlying data when delivering a risk assessment report to the organization’s leadership,” RIMS stated in a press release Tuesday of its new executive report, titled Risk Reports and Perceptions. 

“As it happens, and contrary to conventional wisdom, greater quantification is not always the better answer,” stated Carol Fox, director of strategic and enterprise risk practice at RIMS, in a release.

The report was written by Dale Stoel, Brian Ballou and Dan Heitger, professors of accountancy at the Farmer School of Business at Oxford, Ohio-based Miami University. The purpose of the study was to “examine the impact of using quantification within risk management reports.”

The results of the study by the Farmers School of Business professors “uncover indirect associations between information format and management judgment and confidence,” according to the report. “Specifically, we find an association between the use of qualitative information formats and perceived reliability and relevance of the data for strategic risks, and also find that qualitative information formats are associated with management judgment, judgment confidence and perceived competence of the report preparer.”

Members of RIMS helped the researchers develop and review two sample risk management reports. One focused on strategic risks and the other on operational risks.

“We manipulated the information form within the reports between qualitative reports, range-based report, and point-based reports to understand the impact of the change in reporting form,” the authors wrote.

The 119 RIMS members who participated in the study — who acted as proxies for board members and managers — were each asked to review one strategic risk report and one operational risk report. They were also asked about their “beliefs about the information and the organization’s ability to manage the risks.”