A new study of senior financial executives has identified the top operational risks that have harmed their companies in the past five years. Sixty-six percent of financial executives surveyed say their organizations have been harmed by equipment failure, nearly 60 percent say their firms have been impaired by data breaches or cyber attacks, and more than half (52 percent) have had their operations affected by natural disasters. Yet the majority (54 percent) say their organizations have not developed or tested formal loss-recovery plans.
The study, Finance’s Role in Operational Risk Management: CFO Research on Building a Resilient Company, was commissioned by FM Global, one of the world’s largest business property insurers, and conducted by CFO Research Services.
“It’s surprising the number of companies that have been harmed by operational risk events, coupled with the relatively low number of companies that feel they are very well prepared for a disruption event,” said Eric Jones, operations vice president and global manager of business risk consulting, FM Global. “The findings reveal the opportunity for financial executives to implement stronger plans with increased data, to help move resilience forward within their organizations.”
The study also reveals:
Low Levels of Preparedness for Operational Risk Events: Only 34 percent of financial executives believe their firms are very well prepared to recover from an equipment failure. Just 33 percent feel their organizations are very well prepared to recover from a natural disaster, while merely 24 percent feel their companies are very well prepared to recover from a data breach/cyber attack.
The CFO’s Increasing Perception of Risk: Almost 70 percent of financial executives are concerned that their revenues or earnings will become more vulnerable to operational risk over the next two years, and nearly 60 percent say the need to manage operational risks will make it more difficult to meet revenue and earnings targets over the next two years.
Focus on Protection from Operational Risk in the Near Future: Forty-one percent of financial executives say they will place more focus on preventing losses from operational risks over the next two years, with nearly the same percentage of respondents saying loss prevention and mitigation is more important than insurance coverage.
Need for Increased Resilience in the Future. Overall, the study found a need for improved resiliency in the future. Eighty-six percent of respondents say their companies will need to be more resilient in the future.
“The role of the CFO is being increasingly challenged by serious risk events, which drive volatility and will make it more difficult for them to meet revenues and earnings if these risks are not properly managed,” said Jones. “The pathway to a successful risk management program must include an effective loss prevention program, combined with resilience planning in order to deal with constantly evolving technological, political and environmental risks.”
The research is based on responses received during late 2016 from 100 chief financial officers or senior most financial executives at U.S.-based companies, the majority of whom are from Fortune 1000 organizations across a wide variety of industries.
About CFO Research Services:
CFO Research Services is the research unit of CFO Publishing Corp., which publishes CFO magazine, one of the leading publications for senior financial executives.
About FM Global:
Established nearly two centuries ago, FM Global is a mutual insurance company whose capital, scientific research capability and engineering expertise are solely dedicated to property risk management and the resilience of its client-owners. These owners, who share the belief that the majority of property loss is preventable, represent many of the world’s largest organizations, including one of every three Fortune 1000 companies. They work with FM Global to better understand the hazards that can impact their business continuity in order to make cost-effective risk management decisions, combining property loss prevention with insurance protection.