In the past three years 62 percent of enterprises experienced major risk events: almost half were not well prepared

IBM has published the findings of a major new study of over 1,200 chief financial officers (CFOs) and senior finance executives from 79 countries worldwide, which concludes that a surprising number of enterprises are not well prepared to handle the impact of a major risk event to their organization.

According to the study, 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, titled ‘Balancing risk and performance with an Integrated Finance Organization’ 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. Over half of the participating CFOs and senior finance executives participated in a face-to-face structured interview, designed to capture insights on the subject of risk management and finance transformation. The remaining balance responded to an online survey.

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).

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.

•Date: 25th October 2007• Region: World •Type: Article •Topic: BC statistics
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