WASHINGTON -- January
17, 2012 -- Whether an overseas supplier fails to ship product, labor unrest
erupts, regulations tighten or a natural disaster hits a major trading center,
nothing affects corporate earnings like financial uncertainty. So say finance executives in a new survey
released today by the Association for Financial Professionals (AFP).
The 2012 AFP Risk
Management Survey asked CFOs, corporate treasurers and
other senior finance executives about risks that worry them now, those most
likely to cause uncertainty in the next three years, and actions they are
taking to mitigate those risks. It is
the first in a series of annual risk-management surveys to be published with
collaboration from the Global Risk Center of the Oliver Wyman Group.
Three quarters (72
percent) of responding organizations said their top to concern is managing
financial uncertainty, including the risks associated with credit, liquidity,
interest rates and currency/foreign exchange. Respondents also cited risks
associated with macroeconomic conditions—such as the pace of economic growth
and inflation (38 percent)—and business/operations risks such as supply chain
and/or production disruptions, litigation, labor and outsourcing (36 percent). External risks (country, regulatory, natural
disaster) and commodity risks (power/heat, crude oil & distillates,
agricultural and metals) are also concerns for a significant share of
organizations, but to a lesser degree.
A full 41 percent of respondents expect even more earnings uncertainty
in the coming years.
here to stay," said Jim Kaitz, AFP's president and CEO. "One way
organizations can take control of rising uncertainty in their earnings is by
adopting a new mindset and making more risk-adjusted decisions. The ones that do this effectively will have a
“Most of the critical variables that companies need
to consider in developing their short and long-term strategies are becoming
increasingly difficult to forecast,” said Alex Wittenberg, Oliver Wyman Partner
and head of Global Risk Center. “This survey illustrates that long-term
macroeconomic and environmental trends such as those discussed in the 2012
Global Risks Report are already having a significant impact on companies’
2012 Global Risks Report is produced by the World Economic Forum in
collaboration with the Oliver Wyman Group division of Marsh & McLennan
Companies and other partners. It will be the focus of special
sessions at the World Economic Forum Annual Meeting 2012 in Davos, Switzerland,
taking place on 25-29 January.
More than half of
organizations that view financial-related risks as a major concern identify
liquidity and credit risks as having the most significant potential impact on
their earnings over the next three years.
Forty-six percent have similar concerns about interest rate risk. Just over a quarter (27 percent) believes
that currency/foreign exchange risk will have a significant impact on their
Liquidity risk is a
bigger concern for smaller organizations than for those with annual revenues
greater than $1 billion, even though larger organizations tend to have greater
earnings exposure from currency/foreign exchange risk. This could be due to larger organizations’
longer supply chains and larger international customer base.
cite lack of data and tools to interpret it as barriers to mitigating risks. In
fact, nearly half of organizations surveyed have invested in IT system upgrades
as a risk mitigation strategy. Meanwhile, to moderate the risk of earnings
uncertainty, 31 percent of organizations have increased their use of hedging
and 30 percent have increased their use of contractual risk transfer (including
through the use of insurance).
When managing risk
exposures, the two most important factors that executives cite are cash flow
predictability (74 percent) and performance forecasts (65 percent). Other considerations are the organization’s
reputation (45 percent), solvency (29 percent), preservation of bond covenants
(25 percent) and preservation of debt rating (22 percent).
ABOUT THE SURVEY
In October 2011, AFP
surveyed its senior level corporate practitioner membership about uncertainty
and the way their organizations manage risk. The survey was sent to AFP members
with job titles of CFO, treasurer, controller, vice president of finance and
assistant treasurer, along with member subscribers to AFP’s Risk! newsletter.
The 4,436 surveys sent to this group generated 365 responses. AFP also sent surveys to non-members with
similar job titles, generating an additional 71 responses for a total of 435
Read the 2012 AFP Risk
Management Survey (PDF): www.afponline.org/risksurvey
ABOUT AFP® (afponline.org
The Association for Financial Professionals (AFP) is the daily resource for a
network of more than 16,000 treasury and finance professionals. Headquartered
outside Washington, DC, AFP provides members with news, economic research and
data, treasury certification programs, networking events, financial analytical
tools, training, and public policy representation before legislators and
AFP's global reach
extends to over 150,000 treasury and financial professionals worldwide,
including AFP of Canada; London-based gtnews, an on-line resource for the
treasury and finance community; and bobsguide, a financial IT solutions network.
About Oliver Wyman
With offices in 50+ cities across 25 countries, Oliver Wyman is a
leading global management consulting firm that combines deep industry knowledge
with specialized expertise in strategy, operations, risk management,
organizational transformation, and leadership development. The firm’s 3,000
professionals help clients optimize their businesses, improve their operations
and risk profile, and accelerate their organizational performance to seize the
most attractive opportunities. Oliver Wyman is part of Marsh & McLennanCompanies
[NYSE: MMC]. For more information, visit www.oliverwyman.com
About the Global Risk
The Global Risk Center is
Oliver Wyman's research institute dedicated to analyzing increasingly complex
risks that are reshaping industries, governments, and societies. Its mission is
to assist decision makers to address these risks through research and insights
that combine our rigorous analytical approach to risk management with leading
thinking from research partners.