WASHINGTON - Earnings uncertainty has increased in the last five
years since the onset of the 2008 financial crisis and will
continue for at least the next three, according to finance
executives in a survey released Wednesday 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, 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.
Fully 58 percent of respondents reported that their
organizations are exposed to more earnings uncertainty today than
five years ago. 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 factors 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 Drivers of Earnings Uncertainty
Macroeconomic 30% 27% 24%
Financial 23% 17% 33%
External 19% 20% 13%
Business/Operations 17%
13% 22%
Commodities 11% 23%
7%
All Public Private
Key Risks
More than half of treasury and finance professionals report that
it is more difficult to forecast risk today than 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, respondents 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 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."
Added Alex Wittenberg, a partner at Oliver Wyman and head of the
firm's Global Risk Center: "Developing a sustainable competitive
advantage in an increasingly uncertain environment is the most
important issue facing business today. 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. The survey found that some
organizations are even completely recalibrating their risk
management structures, reporting lines and internal partnerships
because these are decidedly mixed across organizations. 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
& McLennan Companies [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.