Risk Ventures

New release from the World Economic Forum – “Highest levels of political and economic uncertainty for a decade.” The World Economic Forum’s Global Risks 2008, published in cooperation with Citigroup, Marsh & McLennan Companies, Swiss Re, the Wharton School Risk Center and Zurich Financial Services, focuses on four emerging issues which will impact the world economy and society in the decade ahead: 

*Systemic financial risk
*Food security
*Supply chain vulnerability
*Energy

According to a report by Ernst & Young, in collaboration with Oxford Analytica — “Strategic Business Risk: 2008” — regulatory and compliance risks tops the charts, according to surveyed analysts, as the greatest strategic challenge facing leading global businesses in 2008 in key industry sectors.

The top ten strategic risks, according to 70 surveyed analysts, include:

*Regulatory and compliance risk *Global financial shocks *Aging consumers and workforce *The inability to capitalize on emerging markets *Industry consolidation/transition *Energy shocks *Execution of strategic transactions *Cost inflation *Radical greening *Consumer demand shifts 

The report also highlights the five fastest-rising threats that could also have a significant impact over the next three to five years: 

*War for Talent*Pandemic*Private Equity’s Rise*Inability to Innovate *China’s Setback

According to a October 24, 2007 IBM Global CFO study, “Balancing Risk and Performance with an Integrated Finance Organization,” in the past three years 62 percent of enterprises with over $5 billion in revenue encountered a major risk event. When a major risk event did occur, such as strategic, operational or geopolitical, 42 percent of these enterprises were not well prepared for the event.

The Global CFO Study was developed by IBM Global Business Services’ Financial Management practice and the IBM Institute for Business Value (IBV), with assistance from the Wharton School at the University of Pennsylvania and the Economist Intelligence Unit.  

Some excerpts:  

*The Rise of the Integrated Finance Organization (IFO).  “Another key component of the study is the emergence of Integrated Finance Organizations (IFOs) which are defined as entities that, at minimum, mandate standards enterprise wide with a standard chart of accounts, common data definitions and standard common processes. The study concludes that enterprise wide common data definitions, a standard Chart of Accounts, common standard processes and globally mandated standards are the components of good governance and what the study calls the Integrated Finance Organization (IFO). Fewer than one in seven enterprises govern and manage the integration of their Finance organization by the combination of these four criteria. The study finds that IFOs provide greater resiliency, better decision support and help to drive outperforming enterprises. Additionally, the study shows that enterprises with IFOs are more likely to perform better financially than non-integrated finance organizations and are more likely to proactively manage risk.” 

*Who owns Risk?  “CFOs are increasingly becoming “owners” of risk management within their enterprise and sharing ownership with the CEO. The study found 61 percent of CFOs are expected to lead risk management within their organization, followed by CEOs (50 percent), Chief Technology Officers (27 percent) and Chief Risk Officers (19 percent).  The study lends credence to observations that globalization opens up significant opportunities for companies but exposes more risks for the enterprise. The IBM Global CFO Study found that in the past three years enterprises encountered a range of risks including strategic (32 percent), geopolitical (17 percent), environmental/health (17 percent), financial (13 percent), operational (13 percent) and legal and compliance (8 percent).” 

*Formal Risk Management is Immature.  “While risks are prevalent, many companies do not have a formal risk management program in place. At many organizations formal risk management is still fairly immature. By their own admission, only 52 percent acknowledge having any sort of formalized risk management program. Moreover, only 42 percent of respondents do historic comparisons to avoid risk, just 32 percent set specific risk thresholds and only 29 percent create risk-adjusted forecasts and plans.”

Ernst & Young’s recent report on “Risk Management in Emerging Markets,” arrives at some interesting conclusions with respect to emerging markets and how companies manage their risks in doing business there.  Perhaps unsurprisingly, for companies based in developed markets, and with business interests in emerging markets, political risk looms large.  The survey defines political risk and goes on to address what companies are doing about it. 

Some key findings from the survey: *The main goal in emerging markets is growth. Companies have moved on from the traditional view that the primary objective of investment in emerging markets is cost saving.  *Risk priorities differ by location. Developed markets focus on political, operational, and supply chain risk. Emerging markets are more likely to focus on market, competitive, and pricing risk.  *Board focus does not always translate into strategy. There is a consensus that Boards are giving enough attention to risk in these markets. However, only 41% of developed market companies have a risk strategy for emerging markets. *Opinion differs on risk communication. While 71% of emerging market subsidiaries feel they provide sufficiently regular and robust information on risk, only 44% of the parent companies would say the same.  *Opinion also differs on internal audit. Developed market companies have less confidence in the quality of the internal audit testing of their subsidiaries than the emerging market subsidiaries themselves do.

“Infrastructure 2007: A Global Perspective” report by the Urban Land Institute, and sponsored by Ernst & Young LLP. 

“In recent years, the flood of private capital available for investment in commercial property has driven up prices globally. At the same time, the world’s public infrastructure markets have been starved for capital — governments have not had nearly enough funds to meet growing needs for infrastructure development, modernization, and maintenance. Seeing opportunity, more private equity funds, investment banks, commercial banks, and other global investors are beginning to invest in infrastructure. Australia was among one of the first countries to develop models such as public/private partnerships and infrastructure funds to link private capital and infrastructure. Now Europe has widely adapted such models, and they are starting to come into greater use in Asia, and, more recently, in the United States.”

Protiviti is a leading provider of independent risk consulting and internal audit services, and is a wholly owned subsidiary of Robert Half International Inc. Protiviti’s 2007 U.S. Risk Barometer is in-depth analysis of the risk profiles and risk management practices and strategies being employed today by the country’s largest organizations, and includes survey responses from 150 C-level executives. The objectives of the global study are to (1) identify the nature of the risks undertaken by leading corporations worldwide, (2) understand the appetite for risk and concerns with regard to risk of senior executives, and (3) understand the current state of these corporations’ risk management capabilities.  

Among the key findings from the 2007 U.S. Risk Barometer:

*Nearly half of executives rated their organizations to be less than “very effective” at identifying and managing their significant risks, thus leaving them vulnerable to unanticipated losses, reduced productivity and business disruptions.*Of the top 10 risks identified for 2007, competitor risk ranked highest overall, followed by customer satisfaction, the regulatory environment, information systems and IT security, and changing markets.*Views about the benefits of risk management are evolving toward an increased appreciation of the potential organizational impact. In the 2006 survey, “lower insurance premiums” were the top-ranked benefit; however, this year, “quicker identification of risk” was the most oft-cited benefit.

While competitor risk ranked highest overall, the Risk Barometer study found the top risk varied by industry groupings:

 *Manufacturing, distribution and technology – Competitor*Financial services and real estate – Financial markets*Healthcare and life sciences – Regulatory environment*Media, hospitality and services – Customer satisfaction*Consumer products and retail – Competitor*Energy and utilities – Regulatory environment

Symantec’s corporate tagline: “Confidence in a connected world.”  

Symantec’s IT Risk Management Report examines IT risk based on interviews with more than 500 IT executives and professionals worldwide.  The article shows how Symantec’s approach to IT Risk Management can help organizations reduce risk exposure, maximize IT performance, and control costs.  And that organizations today must address four main types of IT risk: security; availability; performance; and compliance. 

Among the report’s findings: *62% of organizations expect a regulatory breach and major information loss in the next five years. *66% of organizations perceive high/critical operational risk in finance and administration. *61% of organizations are not highly effective at governance, compliance, and continuous improvement. *24% of IT staff time is devoted to addressing business application performance delays.