‘2003 Protecting Value Study’ Polls Nearly 400 CFOs, Treasurers and Risk Managers at the World�s Leading Companies
8 April 2003 JOHNSTON, R.I., USA�More than one-third of the world�s leading companies report they are not sufficiently prepared to protect top revenue sources and have room for improvement, according to the 2003 Protecting Value Study. In addition, one hundred percent of the companies surveyed report a major disruption to a top revenue source would have a negative impact on earnings, with 28 percent stating such an event would threaten business continuity.
The study, conducted by commercial and industrial property insurer FM Global, the Financial Executives Research Foundation and the National Association of Corporate Treasurers (NACT), polled nearly 400 CFOs, treasurers and risk managers at both U.S. and international companies from a broad variety of industries. Among the other findings of the second annual study:
- Eighty percent of companies report no significant shift in their risk management outlook post-September 11th �either strategically or operationally.
- Improper management and employee practices represent the leading hazard affecting top revenue sources.
- Property-related hazards, such as fire and natural disaster, collectively continue to pose the greatest threat to revenue sources.
- Eighty-eight percent of financial executives and 83 percent of risk managers say their companies� level of preparation to recover from a major disruption to a top revenue source is less than �excellent.�
- Current business continuity plans may not be sufficiently aligned with top revenue sources at many leading corporations.
To download an executive summary of the study, please visit www.protectingvalue.com.
�The drive to sustain shareholder value by streamlining business processes or restructuring can lead to increased levels of risk in some cases,� commented Ruud Bosman, executive vice president, FM Global. �To best protect cash flow, competitive position and profit, companies need to assess the potential hazards that can impact top revenue sources and make sure business continuity planning is sufficiently aligned.�
The Greatest Hazards
Overall, 59 percent of the companies participating in the study report the greatest impact on revenue sources would derive from property-related hazards, including fire or explosion, natural disaster, terrorism, theft, mechanical or electrical breakdown, service disruption, a supply shortage, labor strike or cybercrime. However, there are differing views between financial executives, such as CFOs and treasurers, and risk managers as to whether property-or non-property-related hazards constitute the greater threat to revenues.
Despite the combined result, a slight majority of financial executives say non-property-related hazards, including improper management and employee practices, product recall, pricing volatility and personal accidents, would pose greater threats to revenues. In contrast, risk managers overwhelmingly consider property-related hazards as posing the greater threat. This suggests business continuity planning may not be sufficiently aligned with top earnings drivers at many corporations.
�Financial executives and risk managers share a common pursuit of balancing risk and return. Yet, the study found they often have different views about their company’s top sources of revenue, relevant hazards, business continuity plans and insurance budgets,� said Marla Markowitz Bace, chief operating officer, Financial Executives Research Foundation. �To effectively address the large inventory of business risks, there needs to be better communication between financial executives and risk managers.�
Safeguarding Top Revenue Sources
Increasingly, companies are looking beyond insurance to protect their assets. Companies report more than one-third of any additional funding to protect one�s revenue sources would be spent on business continuity planning and contingency planning.
�The Protecting Value Study is a tool that financial executives and risk managers can use to convey the importance of prudent risk management, and provides a framework for a meaningful dialogue about protecting the value their organizations create,� added Bosman of FM Global.
For more than 168 years, many of the world’s top corporations have relied on commercial and industrial property insurer FM Global to better understand the nature and causes of fire, natural hazards and other risks as well as for cost-effective insurance to help maintain continuity in their business operations. With offices around the world, FM Global�s clients benefit from its superior insurance capacity, risk assessment services and proven property loss prevention engineering expertise and research. FM Global is rated A+ (Superior) by A.M. Best and in 2002 was named ‘Best Global Property Insurer’ by Global Finance magazine.
Financial Executives Research Foundation, Inc.
Financial Executives Research Foundation, Inc. is the research affiliate of Financial Executives International. The purpose of the Foundation is to sponsor research and publish informative material in the field of business management, with particular emphasis on the practice of financial management and its evolving role in the management of business. The mission of the Research Foundation is to identify and develop timely, topical research to advance the financial management profession. The Foundation’s work is educational rather than editorial.
The Foundation is an independent 501(c)(3) educational organization. The Foundation receives no portion of FEI members� dues; rather, it relies on voluntary tax-deductible contributions from corporations and individuals.
The National Association of Corporate Treasurers
The National Association of Corporate Treasurers (NACT) is a professional association of treasurers from America�s leading corporations of all sizes. Its purpose is to facilitate the exchange of information beneficial to the management of corporate treasury operations.
NACT facilitates dialogue between corporate treasurers and their colleagues, opening valuable opportunities and introducing new approaches and better solutions. Through focused, serious-minded programs and activities, NACT members share ideas on a wide spectrum of financial situations including negotiating for better terms; corporate investment opportunities to enhance income; benefits finance; risk management; insurance; large, medium and small company issues; and many more.