Senior management at 85 percent of Europe’s leading communications, media and technology (CMT) companies have indicated they are placing increased importance on risk management since the economic downturn according to new research commissioned by Marsh.

Marsh’s research indicates that the economic downturn has prompted CMT companies to re-examine their approach to customer risk, credit, cost and supply-chain risk. The research also reveals that dealing with the value chain is made more difficult by the industry’s severe competition and the threat of liquidity problems among customers.

Commenting on the research, Fredrik Motzfeldt, Marsh’s CMT Leader in Europe, the Middle East and Africa, said: “European communication, media and technology firms surveyed have low levels of confidence in their existing risk management procedures. Only 25 percent are very confident in the ability of their company’s processes to fully address the risks facing them. This means that these processes have to change.

“It is heartening to note that 85 percent of senior management have recognised the crucial role that risk management plays in the long-term success of their firms. The projected increase in budgets is consistent with the importance now attached to risk management and the low confidence in existing processes.”

The report reveals that European CMT companies are putting an increased focus on risk management. Over three-quarters of respondents said they had reviewed their approach to risk as a result of the recession. One-third expect their risk management budgets to increase over the next 18 months, while 55 percent expect it to remain the same.

When asked about the two or three risks that will be priorities over the next 18 months, participants mention bank solvency, foreign exchange risks, contractor risk and investments not performing. All of these issues are general business risks, strongly linked to the downturn and with a macroeconomic focus.

Mr Motzfeldt commented: “We are surprised at the absence of sector-specific risks, although they are multiplying by the day. For example, intellectual property is rated a significant risk by only 30 percent of participants. Each new line of business or new product launched brings with it new and unmapped risks. For example, the ability to make bill payments using a mobile phone means that an operator is open to new risk in the areas of fraud, reputation and errors and omissions. Companies need to plan how they manage these risks proactively from the outset.”

One of the most comprehensive risk management studies to have been undertaken among European CMT firms since the financial crisis began, Marsh’s paper, ‘New Risk Management Insights for Communications, Media and Technology Firms’, is the second in a series of industry sector reports to be published over the coming weeks. Senior risk and insurance professionals in 107 CMT firms across Europe were interviewed to examine their attitudes towards risk management in the current economic downturn, including details of risk priorities, strategies, management and solutions.

When asked about the key risks facing their organisations over the next 18 months, respondents expressed basic concerns about the everyday mechanics of buying and selling.

Key risks identified as very or fairly significant for the next 18 months include:
* Credit (66 percent)
* Supply chain management (44 percent)
* Business continuity (65 percent)
* Outsourcing (33 percent)
* Contractual performance (53 percent)
* Intellectual property (30 percent)
* Human capital (48 percent)

Recommended actions for CMT organizations:

* Understand your risk profile and benchmark it against your peers. No source of information should be neglected when trying to get a more complete picture of your risks, including peers and advisers. CMT companies should strive to make best use of other risk management tools and systems, particularly regarding business continuity and supply chain monitoring.

* Do not neglect industry-specific risks. Although all companies operate in the same world economy, for CMT companies these risks are likely to be increasing and changing, especially given the pressures to move into new sub-sectors. At board level, the company should know what its intellectual property is worth, and what the company is doing to protect and exploit it.

* Produce more and better information than your competitors. Top companies collect and process risk information in such a way that enables them to make compelling arguments to insurers, which respond well to high quality information. Even more troubled companies benefit from the markets’ response to good information.

* Use the information you gather. Many companies collect data about their risks for regulatory purposes, but then fail to do use it elsewhere. Risk evaluation should not an exercise to be completed once a year and then forgotten about. The trend towards increasing centralisation helps to counter this ‘evaluate and forget’ attitude, as it means that someone in the organisation is responsible for what is done with risk management information.

www.marsh.com

•Date: 25th June 2009• Region: UK/Europe •Type: Article •Topic: Operational risk
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