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US private companies and risk resilience

PwC's Private Company Trendsetter Barometer tracks the business issues and best practices of privately held US growth businesses. It incorporates the views of 226 CEOs/CFOs:127 from companies in the product sector and 99 in the service sector, averaging $315 million in enterprise revenue/sales and including large, $500 million-plus private companies.

The latest Trendsetter Barometer finds that Black Swan events and other external shocks in 2011, such as the Japanese tsunami, the Arab Spring, and Europe's sovereign debt crisis, exposed vulnerabilities in private companies' risk preparedness. Among the chief executives surveyed only a minority say they're very confident that their current risk management strategies will prove effective over the next few years, with nearly one-third (29 percent) citing the need to revisit those strategies.

Notably, companies that feel a need to revisit their risk strategy are the ones most intent on growth over the next 12 months.

The need to revisit risk strategy was also cited by a greater percentage of companies that sell abroad (39 percent), compared with US-only companies (21 percent). International companies are also more alert to the threat and potential effects of low-probability, high-impact events (Black Swans): 81 percent of companies that feel a need to revisit risk management specifically in light of last year's Black Swans are selling abroad, with one-quarter of their revenue being derived from international sales.

Among companies that are changing their risk strategies in light of Black Swan events, there's an apparent disconnect between where they think their risk focus should be and where it actually is. While most of them (87 percent) agree that they need to focus more on detecting a broad range of emerging risks, the bulk of their current risk-management effort (70 percent) goes into preparing for known, recurring risks; a considerably smaller 30 percent of their risk-management effort goes into monitoring circumstances to detect as-yet-unknown risks.

More details.

•Date: 15th March 2012 • US •Type: Article • Topic: Enterprise risk management

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