Despite a slowly improving US economy, finance executives haven’t relaxed
when it comes to risk management because a new set of threats is keeping
them up at night, according to a report released Wednesday by the
Association for Financial Professionals (AFP), parent of gtnews.
The 2014 AFP Risk Survey, produced in conjunction with Oliver Wyman, found that US corporations expect earnings uncertainty to continue this year and they are focused on how potential political/regulatory risks (48%) and competition (48%) could potentially destabilise corporate performance.
“As global markets, national economies and industries search for innovative and efficient solutions to fundamental issues and new technologies disrupt the status quo, there is an unprecedented opportunity for companies to create long-term shareholder value,” said Alex Wittenberg, a partner at Oliver Wyman and head of the firm’s Global Risk Center.
“We believe the firms that take a more proactive approach to bringing their risk analysis and financial forecasting capabilities into alignment will be able to realize strategic rewards that will clearly differentiate them from their competitors.”
Organisations generally expect uncertainty to continue. Eighty-four percent of respondents report that their organisations are exposed to the same or more uncertainty today than they were three years ago.
Top risk concerns have shifted. The focus is on competitors and customers, rather than macroeconomic factors:
- Financial factors such as credit, liquidity, interest rate, currency and foreign exchange (FX) risk (26%).
- External factors such as country risk, regulatory risk and natural disaster (25%).
- Business operations, such as supply chain disruptions, production interruptions, litigation, labour outsourcing, and IT (23%).
At the highest management levels, risk matters. Over 90% of financial professionals note that risk management is either “very important” or “important” at the executive management level.
The survey also found that successful companies foster cooperation between FP&A and risk management. Cooperation between these functions improves the quality of inputs from across business units, providing the executive team with better business insights for strategic planning and forecasting.
“We are finding that companies have better insight into risk when they coordinate risk management with the financial planning and analysis function,” says Jim Kaitz, AFP’s president and chief executive (CEO). “A good place to start is by engaging the CFO in a discussion about how the company manages risk now and what the risk management goals are.”
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