Financial executives at the world’s largest companies expect the severity of their most prevalent business risks to remain constant or intensify through 2009, according to the “Managing Business Risk Through 2009 and Beyond” study commissioned by commercial and industrial property insurer FM Global.
Executives identified the top three biggest threats to their organizations’ revenue as competition, followed closely by supply chain disruption and property-related risks.
The study also reveals a range of emerging risks that, while not among their primary concerns today, executives say could pose challenges in the years ahead.
It also finds that organizations that skimp on risk management could suffer a serious loss of competitiveness.
Available online at http://www.protectingvalue.com/ , the study findings include the perspectives of more than 500 financial executives in North America and Europe-including CFOs and treasurers-who work for companies with at least $500 million or more in annual revenue.
Among the key findings:
Sixty-two percent of financial executives expect risk from competition to increase through 2009, while only four percent expect it to decrease.
Nearly one-quarter of financial executives expect supply chain risk to increase through 2009, while only eight percent expect it to decrease.
The top five emerging threats for corporations include changes in competition, government and regulatory developments, pricing volatility, variable client demand and political threats.
Fifty-six percent of financial executives anticipate that, in the years
ahead, finding enough time, money and people will be their biggest challenge to implementing a strong risk management program.
More than one-third of financial executives expect a significant challenge in getting senior management to make risk management a top priority.
Attitudes about managing business risk vary significantly among
financial executives in France, Germany, North America and the United Kingdom.
Consequences of Risk
“This year’s study results are a forceful reminder that managing business risk is a continuous, dynamic process, and not something a company can afford to be complacent about,” said Ruud Bosman, executive vice president at FM Global. “Successful organizations proactively identify and address the threats they face today, while never losing sight of emerging risk on the horizon.”
Over one-half of the financial executives warn that a disruption to their top revenue driver can mean a loss of competitiveness, which can translate into both a loss of market share and reduction in their company’s valuation. Additionally, almost one-quarter of executives report such a disruption could result in employee layoffs and/or an adverse impact on the local economy. Other top potential consequences executives cite include having to exit a line of business, undergo leadership changes, witness their company’s credit rating downgraded, or face regulatory scrutiny or legal action.
“As the financial executives interviewed for this study warn, the price of a major business disruption can far outweigh the cost of effective risk management,” says Bosman. “Organizations that may be tempted to shortchange their risk management efforts face potential consequences ranging from the severe-a loss of competitiveness-to the catastrophic-having to cease operations altogether.”
Differing Country Views
While financial executives in Europe and North America share many of the same concerns about the state of business risk, the study reveals a number of significant differences between the attitudes of executives based in the United Kingdom, and those of senior management in France, Germany, and the United States and Canada. For example:
A higher percentage of North America-based financial executives are concerned about risks related to supply chain and property than their counterparts in Europe, who tend to focus more on risk related to competition.
On average, 59 percent of financial executives say a loss of
competitiveness is the most serious consequence of risk affecting their top revenue driver; however, only 37 percent of financial executives in France feel the same way.
While nearly two-thirds of executives in the United Kingdom and North America cite downside risk as posing the most prevalent threat to their revenue, the same applies to only 45 percent of Germany respondents.
U.K.-based financial executives routinely express more pessimism than their counterparts elsewhere: sixty-two percent of U.K. executives polled worry about a loss of competitiveness compared with 51 percent of all other respondents.
Twenty-four percent of U.K.-based respondents say a disruption can lead to exiting a line of business or ceasing operations all together, and 21 percent say it can lead to leadership changes. By contrast, only 10 percent of all financial executives worry about exiting a line of
business or ceasing operations as a result of a major business
disruption, and only eight percent worry about leadership changes.
FM Global commissioned market research firm Opinion Research Corporation to conduct the study, which is available online at http://www.protectingvalue.com/
Opinion Research Corp.
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