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Ixnay Ceteris Paribus


...because there is no such thing as decision making under static conditions.

2011 Top Corporate Risks in Eleven Risk Source Categories

The winter holidays are an enjoyable time of year from Thanksgiving to Christmas to New Year’s Day and finally ending with my favorite…the World Economic Forum gathering in Davos. Downloading the annual Global Risks report always raises the same excitement and giddiness as I had when opening up a new baseball glove at Christmas as a child (almost).Risk Ahead blue road sign.jpeg

The WEF’s Global Risks 2011 analysis addresses 37 global risks as perceived by members of the World Economic Forum’s Global Agenda Council and supported by a survey of 580 corporate, government, and organizational leaders and decision makers from around the world. As a cross-geography and cross-industry assessment of top risks over the coming decade, the report points out the world’s most weighty challenges.

This year’s perception of the highest impact and most likely global market risks includes climate change, fiscal crises, and economic disparity. The next tier of top risks offers relatively more cyclical challenges including global governance failures, storms and cyclones, extreme energy price volatility, and geopolitical conflict.

While the leaders at Davos this week can discuss the world’s top risk trends, here is IMT's list for the more immediate corporate risks that US businesses will face in 2011 using Intelligent Management Trends’ risk taxonomy for eleven primary risk source categories (not in any particular order):

  • Financial Risk: Large corporate cash positions – Moody’s Investor Service notes non-financial US corporations now have nearly $1 trillion in cash and short-term investments. Great strategy during a volatile period, but how is that money going to be best used in the likely slow-growth economy ahead?
  • Economic Risk: Currency volatility – Political pressure on the control of the yuan, emerging market imbalances, and quantitative easing make exchange rates a precarious apple cart.
  • Operational Risk: Emerging markets supply chain challenges – During the poor economy, expansion into emerging markets was like a gold rush. Now long-term sustainability and market share growth will depend on reliable supply chains in new markets. Currency volatility only exacerbates the business risks associated with supplier relationships in foreign markets.
  • Competitive Risk: M&A opportunities – With a stabilizing economic business environment and large cash positions, this is typically the busiest M&A period of a business cycle. PwC predicts a resurgence of M&A activity in 2011. Purchase values are likely at their lowest. Plenty of decisions to make now.
  • Customer Risk: New purchasing channels – The stabilizing economy will hopefully stabilize customer credit. The greater challenge now is staying ahead of customers’ preferred purchasing channels moving from the Internet in general to more mobile-based options.
  • Human Resources Risk: Retirement and healthcare benefits – Congressional wrangling on health care and social security benefits means workers will look to companies that offer stable long-term solutions. Good benefits programs will play a greater role in attracting and maintaining talent.
  • Information Risk: Intentional information leaks – Disgruntled employees and customers have always had the means to voice their displeasure with a company, but Mr. Assange’s WikiLeaks and other online resources raise the stakes on the breadth, depth, and visibility of potential information leaks. More than a few companies are scrambling to solidify their reputation risk crisis response procedures.
  • Technology Risk: Cloud strategy – Cloud computing has been around in some form for decades, but the number of companies offering all forms of technology as a service has exploded in the past year. If you haven’t felt the pressure yet to adopt some cloud solutions, you will soon. Experimenting with application options is one thing. Setting a future course and risk strategy for your technology investments is another.
  • Environmental Risk: I won’t attempt to predict acts of God…I will leave that to the seismologists, meteorologists, oceanographers, and others.
  • Litigation Risk: Legal role reporting structures - No prediction for a specific type of litigation risk here, but rather a warning on the growing risk of dismissing or downplaying litigation risks and ethical concerns as more lawyers report to business managers rather than a legal department.
  • Regulatory Risk: Extension of SEC & EPA controls – The changeover in the U.S. House control will restrain further groundbreaking regulatory powers this year, but under the pass it before we know what is in it mode, the implementation of the Dodd-Frank Act will alter more SEC requirements. Congressional blocks to implementing carbon emission trading will shift the administration's efforts to extending EPA directives.

This is my take on a broad set of top risks corporations should consider for strategic planning in 2011. I encourage all risk managers to broaden their perspective on risk sources and organizational challenges for their enterprise risk planning and risk management strategies. Consider emerging risks as you conduct market assessments and analyze new industry trends in light of your company's risk appetite.

For in-depth analysis of risk management trends, risk vendor resources, and risk categories access IMT's report "Enterprise Risk Management Market Taxonomy."

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IMT's blog Ixnay Ceteris Paribus is dedicated to highlighting current management trends and the services, software, and information vendors that support timely and deliberative risk-aware business decision making.


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