WASHINGTON – February 27, 2013 – Earnings
uncertainty has increased in the last five years since the onset of financial
crises and will continue for at least the next three, according to finance
executives in a survey released today by the Association for Financial
Professionals (AFP). The survey is the
second in a series of annual risk-management reports published with
collaboration from the Global Risk Center of the Oliver Wyman Group.
The 2013
AFP Risk Management Survey asked CFOs, corporate
treasurers and other senior finance executives how their organizations are
addressing risks through a risk-adjusted decision framework
that includes forecasting, risk culture, organizational structure, metrics and
other solutions.
More than half of respondents reported that their
organizations are exposed to more earnings uncertainty today than five years
ago (58 percent). Furthermore, more than
half expect the forecasting of critical variables to become even more difficult
in the next three years.
Among these critical variables, the largest share of
survey respondents (30 percent) cited macro-economic factors – such as GDP
growth – as the most influential ones driving earnings uncertainty, followed by
financial factors, external conditions, and commodities. Respondents from publicly traded companies
cited commodities as the most influential factor; those from privately held
companies tended to cite financial factors and business operations.
PRIMARY DRIVER OF EARNINGS UNCERTAINTY
Macroeconomic
30% 27% 24%
Financial
23% 17% 33%
External
19% 20% 13%
Business/Operations
17% 13% 22%
Commodities 11%
23% 07%
-------- ------ -------
All
Cos. Public Private
KEY RISKS
More than half of financial professionals report
that it is more difficult to forecast risk today than it was five years ago. Furthermore, the risks that are hardest to
forecast are having the greatest impact on earnings and will continue to
influence financial results in the future, finance executives say. They predict
the risks with the biggest impact are customer/satisfaction retention (cited by
44 percent of respondents), regulation (37 percent) and GDP growth (35
percent), followed by political risk (28 percent), interest rates (21 percent)
and credit risk (21 percent). Executives
from companies with revenues under $1 billion saw customer behavior as having
the biggest impact, whereas those from larger companies saw GDP growth as
having the biggest impact.
"From subtle changes in consumer tastes to
sweeping changes made by regulators, future risks can be difficult to manage
proactively,” said Jim Kaitz, AFP’s president and CEO. “That’s why a risk mindset must permeate the
entire organization.”
"Developing a sustainable
competitive advantage in an increasingly uncertain environment is the most
important issue facing business today," says Alex Wittenberg, a partner at
Oliver Wyman and head of the firm's Global Risk Center. "Those companies that understand how
risks inherent in their inputs, outputs, and operations will explicitly impact
their financial results are more likely to seize on new opportunities and lead
the pack."
To mitigate risks, executives report that they are responding
with a strategic investment of time, energy and resources. They are elevating
the importance of risk within their organizations by building awareness,
testing assumptions more widely, investing in IT, and providing advice and
insight. Some organizations are completely recalibrating their risk management
structures, reporting lines and internal partnerships because these are
decidedly mixed across organizations, the report showed. In addition, more than
half of respondents are conducting more reviews of emerging risks at a senior
level.
ABOUT THE SURVEY
In November 2012, 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, generating responses from 547 financial professionals at a range of
organizations, large and small, public and private, across North America. Read
findings from the 2013 AFP Risk Management Survey (PDF): www.afponline.org/risksurvey
ABOUT AFP®
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 regulators. 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 CENTER
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.