Economic Development and Human Resources

Global risk management survey identifies top 10 risks

Economic slowdown is at top of executives’ fears.

July 19, 2013
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What is the top risk perceived by companies today? According to Aon’s 2013 Global Risk Management Survey, which was conducted during the fourth quarter of 2012, the No. 1 risk identified by companies across the globe is economic slowdown/slow recovery.

The risk management services and human resource consulting and outsourcing firm released its report recently, highlighting the top 10 risks currently facing companies. More than 1,400 respondents participated in the survey, representing 28 industry sectors and encompassing small, medium and large companies in 70 countries.

The top 10 risks identified were:

  • Economic slowdown/slow recovery
  • Regulatory/legislative changes
  • Increasing competition
  • Damage to reputation/brand
  • Failure to attract or retain top talent
  • Failure to innovate/meet customer needs
  • Business interruption
  • Commodity price risk
  • Cash flow/liquidity risk
  • Political risk/uncertainties

According to Aon, the survey results reflect the continued interdependency of risks.

“Similar to the prior survey, study findings highlight the interdependency among many of the top risks as well as risks outside of the top 10 rankings,” reads the report. “Political risk can impair an organization’s ability to procure raw materials or energy from affected nations, posing a threat to the supply chain and leading to business interruption and damage to reputation. A company with a damaged reputation might find it hard to attract talent and the lack of talent would result in failure to innovate and meet customer needs.”

As a result, Aon noted that companies could no longer evaluate risks in isolation from one another.

Although the survey reflected the top concerns identified by the companies surveyed, Aon believes there were some risks that were under-ranked.

For example, the report notes that in North America, the category of computer crimes, hacking, viruses and malicious codes was ranked No. 8, which Aon attributes to the regularity of reports on data security breaches.

“The barrage of media reports have heightened people’s awareness and influenced companies’ perceptions; however, this same risk is ranked lower by respondents in other regions — Asia Pacific (37), Europe (19), Latin America (35) and Middle East and Africa (19),” reads the report. “With the recent high profile network breaches in South Korea and the cyber attacks on the European Commission, the ranking of this risk is very likely to be re-evaluated.”

Lynn Jekkals, managing director of Aon in Grand Rapids, noted cyber risk is growing and clients are becoming more interested in products that protect against it.

“Even though the top purchasers currently are banks, health care and retail, we are seeing interest in all types of companies,” Jekkals said.

Jekkals provided the following example from the health care industry: “Someone that works at a hospital lost their computer or had their computer stolen, so potentially someone broke in and the data was compromised.”

One of the key issues with cyber attacks is notification.

“Every state has different laws, which is one of the complications,” Jekkals said. “If it was just Michigan data, you’d have to follow the Michigan laws for notification of anybody whose information could have been compromised. We counsel clients that, if it is more than one state, to go with the strictest state.

“The cost of the notification is one thing, potential lawsuits for damages is another area where you could be responsible and liable, but the brand reputation loss is another area that is more difficult to insure.”

Social media is another risk factor growing in importance, although it was ranked No. 40.

“While it’s great to use social media for marketing and communication, and you can touch a lot of people, things could go south very quickly, as well,” Jekkals said. “How you manage that and respond to a bad event or negative social media is a big risk to companies. It all kind of relates to the reputation.”

Aon recommends companies develop strong programs around social media and test them to ensure they are sound.

Weather and natural disasters were ranked No. 16; however, companies surveyed predicted weather would become a greater risk in the coming years. Aon attributes that to the increase in natural disasters and weather events such as earthquakes, droughts and hurricanes.

Jekkals believes weather is a growing concern for Grand Rapids businesses. She said that the flooding that hit West Michigan earlier this year has influenced local clients who found they were not prepared for how a weather event could impact their supply chain.

“I think we found that some companies were a bit surprised at how widespread their supply chain was. Even if not a direct supplier, a supplier of a supplier made it such that they couldn’t get parts and they were potentially impacted for something that they didn’t expect,” she said. “So, really diving deep into what is your disaster recovery plan, making sure it is written and tested. I think these global events are good testaments to why that is a good investment of time and capital.”

According to the Aon report, the 2013 results reveal a disturbing trend related to risk readiness and losses.

“On average, reported loss of income from the top 10 risks has increased 14 percent, from 28 percent in 2011 to 42 (percent) in 2013, while reported readiness has dropped 7 percent, from 66 to 59 percent.”

The projected 2016 top 10 risks are:

  • Economic slowdown/slow recovery
  • Regulatory/legislative changes
  • Increasing competition
  • Failure to innovate/meet customer needs
  • Failure to attract or retain top talent
  • Political risk/uncertainties
  • Commodity price risk
  • Damage to reputation/brand
  • Weather/natural disasters
  • Cash flow/liquidity risk

Rankings from North American companies differed little from the global lists for both 2013 risks and 2016 projected risks.

In 2013, the top 10 risks for North American companies included computer crime/hacking/viruses/malicious codes (8) and inadequate succession planning (10), while political risk/uncertainties and cash flow/liquidity risks did not make the top 10.

For 2016, the top five North American projected risks were the same as the top five global listing, but with regulatory/legislative changes swapping places with increasing competition.

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