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Three quarters (72 percent) of responding organizations said their top 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% of respondents expect even more earnings uncertainty in the coming years.
"Uncertainty is here to stay," said
"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
The 2012 Global Risks Report is produced by the
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 earnings.
Liquidity risk is a bigger concern for smaller organizations than for those with annual revenues greater than
Executives surveyed 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).
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