Top ten risks to business

Unsurprisingly, perhaps, the number one risk to business, as perceived by those companies that took part in Aon’s Global Risk Management Survey for 2009, was economic slowdown. Business Editor Lindsey Turnbull hears more about the top ten risks and how businesses ought to be dealing with those risks and reports in this first of a two part article.

As key strategists in the global business of risk, Aon is a risk advisor and insurance broker to thousands of clients all over the world. Its most recent Global Risk Management Survey (conducted at the end of 2008 with a report published in early 2009 – its first ever survey was conducted at the end of 2006) polled over 500 client companies in 40 countries to find out exactly what worried business the most on a global scale.    
 
Aon Global Risk Consulting’s Stephen Cross, gave his presentation on the findings of the report at last year’s Cayman Captive Forum held at The Ritz-Carlton in early December and said that the findings, although relating to business perception at the end of 2008, were still extremely relevant as we move into 2010.
 
Even though this was a comprehensive look at the top ten risks to business, Cross pointed out that the ranking of each risk was actually unimportant and that the audience would be well advised to simply think about each and every risk and how it could possibly impact everyone’s business in 2010 and beyond.
 
Starting from number 10 and working his way to the top, Cross said that talent management was a risk that continues to remain a high priority for respondents to the survey.
 
“Talent management drives the industry,” he said. “If you don’t have the best people you cannot sell the brand.”
 
The economic impact of not being able to attract and retain the best talent includes a loss of clients, reduction of employee morale and productivity and an increase in litigation risks and compensation costs. 
 
Third party liability sat as the ninth most worrisome risk to business by Aon clients, moving lower down from the third place ranking in the 2006 survey. Cross said that this was a “key risk but extremely predictable”. Major trends among this particular risk included third party litigation funding, as well as class action suits and the economic impact could well include an increase in frequency and severity of law suits (by former employees as well as shareholders driven by market losses.)  Cross outlined mitigation strategies which included improved health and safety standards and exiting from certain products, services or markets.
 
Supply chain management came in as the eighth risk and Cross said that major trends in this risk included offshoring and outsourcing, lean sourcing, reductions/consolidations of supplier base and a reliance on technology.
 
Cross described the scenario of mobile phone makers Erickson and Nokia which both required certain computer chip components: “One of the main factories supplying the chips became contaminated and shut down. Nokia moved swiftly and blocked the remaining suppliers to ensure that they were the only company to receive the chips.  Compare how many Nokias there are in the market nowadays in comparison to Ericksons! If a supplier shuts down it can kill your business.” 
 
The economic impact therefore when supply dries up for whatever reason include an inability to produce/deliver goods, a decrease in new and recurring sales and an increase in the cost of production.
 
Mitigation strategies include targeted risk assessments and supply chain mapping, diversification of location and suppliers, business continuity planning, hedging and technology enhancements.
A new entry for this latest survey, due to the challenging economic environment, at number seven was the risk of cash flow and liquidity.
 
Cross said that the economic impact felt when the cash dries up in an economic crisis included an inability to quickly trade assets to pay liabilities, credit losses from bond delinquencies, and stock market volatility stressing cash flows.
 
An evaluation of collateral requirements was therefore needed, as well as a re-evaluation of investment portfolios and budgeting assumptions.
 
Next month read about further risks to business and how to mitigate them.

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