The long view: Getting new perspective on strategic risk is an Economist Intelligence Unit report that explores how companies manage long-term strategic risks in their business. The report is sponsored by ACCA and Willis.

During times of uncertainty and change, current challenges will often take priority over long-term plans. With the euro zone crisis still in full swing and with developed markets facing the prospect of a double-dip recession, many business leaders will naturally focus their attention on the immediate future. They will seek assurances that their short-term financing needs will be met and will pay careful attention to the quarterly results to detect signs of market deterioration.

This short-term focus is ingrained in institutional structures and thinking. Most chief executives will enjoy an average tenure of around six years, which means there are few incentives to bring long-term problems to the top of the agenda. A relentless focus on shareholder value creation has encouraged business leaders to prioritise short-term profits and share price moves over long-term performance. Incentive structures have often reinforced this focus by rewarding managers for meeting short-term targets.

Short-term metrics will always be important indicators of performance, and companies will always need the ability to take decisions quickly and adapt to immediate opportunities and threats. But a retreat into the present will reduce a company's chances of long-term, sustainable success. Business leaders must therefore combine their skills of adaptability and addressing immediate challenges with a focus on longer-term risks and opportunities.

At a time when the world is changing so rapidly, it may seem as though any attempt to think about the future will be doomed to failure. In one respect, this is true. No one can predict the future and the current pace of change means that it is more difficult than ever to attempt it. But by considering how different futures might evolve, and ensuring that the organisation is equipped to deal with a range of outcomes, companies will not only be better prepared for the future but will also be more knowledgeable about their current situation.

This report explores current approaches to long-term strategic planning and risk management. Based on a global survey of senior executives with responsibility or influence over their company's risk management, and a programme of interviews with industry experts and commentators, the report looks at how companies link risk management with strategic planning. Key findings from this research include:

Long-term risk management is rising on the agenda for many business leaders. Over the past year, almost one-half of companies say that they have made their risk management more forward-looking. At the most senior level of the organisation, discussions about long-term prospects and risks are becoming more frequent. Just over one-third of respondents say that their board and senior management has increased the time that they allocate to long-term risk analysis.

Links between risk management and strategy are strengthening in many organisations. More than one-half of respondents say that their risk function plays a formal role in strategy-setting and in evaluating new market investments. A similar proportion of respondents believe their organisation is effective at linking risk management with strategy. It is an encouraging sign that companies are adopting a more rigorous approach to considering the risks associated with their strategy, and that risk functions are gaining a more influential position within organisations.

Many companies are using scenario planning, but few embed it into the overall strategy process. A large majority of companies are already using scenario planning and other tools to identify and assess long-term risks. But few companies are embedding these techniques into their overall strategic decision-making. Only 20% of respondents say that scenario planning plays a vital role in helping their company to formulate and adapt strategy in uncertain times. Companies also admit that they may need to allocate more time to a longer-term view. More than one-half of respondents agree that they should spend more time thinking about the risks they will face ten years from now.

The time horizons for strategy and risk are often misaligned. Some companies are making long-term strategic plans without a proper consideration of the associated risks. Asked about the maximum period over which they consider strategic objectives, 58% say that their timeframe is greater than three years. But asked about the maximum period over which they consider risks, the proportion with the same time horizon is much smaller, at 44%. In other words, strategy discussions are less likely to incorporate an assessment of risk as the time horizon increases.

A short-term focus among business leaders can prevent a more thorough assessment of long-term risks. Asked about the barriers that can prevent their company from taking a longer-term view of its risk exposure, respondents point to an executive management that is more focused on immediate risks as the chief culprit. At a time of considerable uncertainty in the external environment, this short-term focus is understandable. But boards and senior management must move beyond this myopia and ensure that immediate priorities do not crowd out longer-term strategic planning and risk management.

Risk functions need to do more to challenge entrenched views of the future. Despite progress towards a more widespread long-term assessment of business risks, there is a danger of complacency. Business leaders can often have deeply embedded mental maps of how the future might evolve. It is notable, for example, that almost one-half of respondents agree that looking into the future merely tends to confirm what they already know rather than providing them with new information. This highlights the importance of a risk function with the stature to question strategic assumptions. Two-thirds of respondents agree that the risk function needs to do more to challenge management's view about how the future might unfold.