Business risks today are global, spanning industries as well as borders. According to Aon Risk Solutions, even the most seasoned risk managers find it a challenge to anticipate and respond effectively to the increasingly expansive and evolving threats to their organizations.
Aon Risk Solutions released its bi-annual 2013 Global Risk Management Survey, and found that, on average, reported loss of income from the top 10 reported risks has increased from 28 percent in 2011 to 42 in 2013, while reported risk readiness has dropped 7 percent.
For the third straight survey, "economic slowdown/slow recovery" has been ranked as the top risk facing organizations, while "political risk/uncertainties" entered the top 10 for the first time.
Conducted in 2012's fourth quarter, the survey gathered input from 1,415 respondents, which represent public and private companies of all sizes around the globe across many industries.
Click "Next" to see the top 10 risks as reported by the survey respondents.
1. Economic slowdown/slow recovery
Since concerns over the world's economy will not go away soon, Aon says organizations need to embrace it for the long-term and from a global perspective. We are no longer sitting on an island by ourselves. What happens on the other side of the world can have a direct impact on every organization, whether it has international operations or not. For example, during the financial crisis, the drop in real estate values, record high foreclosure rates and default rates on loans in the U.S.triggered a worldwide credit crisis that affected businesses everywhere, making it harder for them to obtain loans and expand.
Therefore, says Aon organizations must plan for this risk by learning from lessons in the past, stepping out of their day-to-day operations and thinking in terms of organizational readiness for the future.
Where each industry ranked this risk
1st:
Aviation
Chemicals
Conglomerate
Consumer Goods Manufacturing
Construction
Hotels and Hospitality
Lumber, Furniture, Paper and Packaging
Machinery and Equipment Manufacturers
Metal Milling and Manufacturing
Non-Aviation Transportation Manufacturing
Non-Aviation Transportation Services
Professional and Personal Services
Real Estate
Rubber, Plastics, Stone and Cement
Technology
Wholesale Trade
2nd:
Banks
Government
Retail Trade
3rd:
Educational and Nonprofits
Healthcare
Insurance, Investment and Finance
Pharmaceuticals and Biotechnology
Telecommunications and Broadcasting
5th:
Natural Resources (Oil, Gas and Mining)
Utilities
6th:
Agribusiness
Food Processing and Distribution
2. Regulatory/legislative changes
Since the financial meltdown in 2009, Aon says governments around the world have stepped up their regulatory functions and are becoming more robust in setting and determining policies for businesses, not simply for the financial sector, but for industries across the board. While most companies accept the need for rules to govern business and are accustomed to working within regulatory constraints, the sheer volume and complexity of these rules can still be daunting, not to mention the frequency with which they change.
Aon notes the irony in regulations — designed to help businesses mitigate risks — being perceived as a key risk factor facing businesses. More companies see the increasingly stringent regulations as intrusive and burdensome.
Where each industry ranked this risk
1st:
Banks
Government
Healthcare
Insurance, Investment and Finance
Pharmaceuticals and Biotechnology
Telecommunications and Broadcasting
Utilities
2nd:
Educational and Nonprofits
Non-Aviation Transportation Services
Professional and Personal Services
Real Estate
3rd:
Agribusiness
Natural Resources (Oil, Gas and Mining)
Non-Aviation Transportation Manufacturing
4th:
Aviation
Wholesale Trade
5th:
Lumber, Furniture, Paper and Packaging
Rubber, Plastics, Stone and Cement
6th:
Chemicals
Construction
Metal Milling and Manufacturing
8th:
Consumer Goods Manufacturing
Food Processing and Distribution
Hotels and Hospitality
Retail Trade
9th:
Conglomerate
Technology
11th:
Machinery and Equipment Manufacturers
3. Increasing competition
Increased competition has a direct and lasting impact on earnings, says Aon. At present, a weakened global economy means that consumers have less disposable income and companies are competing for a smaller base of clients with decreased spending power. Therefore, increasing competition has made it imperative for companies to focus on innovation, brand recognition and product differentiation to survive and thrive.
Where each industry ranked this risk
1st:
Retail Trade
2nd:
Aviation
Conglomerate
Construction
Insurance, Investment and Finance
Pharmaceuticals and Biotechnology
Rubber, Plastics, Stone and Cement
Technology
Telecommunications and Broadcasting
3rd:
Hotels and Hospitality
Non-Aviation Transportation Manufacturing
Non-Aviation Transportation Services
Professional and Personal Services
Wholesale Trade
4th:
Chemicals
Consumer Goods Manufacturing
Educational and Nonprofits
Healthcare
Lumber, Furniture, Paper and Packaging
Metal Milling and Manufacturing
5th:
Banks
Machinery and Equipment Manufacturers
6th:
Agribusiness
9th:
Real Estate
10th:
Food Processing and Distribution
14th:
Natural Resources (Oil, Gas and Mining)
18th:
Utilities
26th:
Government
4. Damage to reputation/brand
Since reputational events often arrive with little or no warning, organizations are forced to respond in real time and economic losses are mounting. Aon says the unpredictable nature of reputational and brand-related events continues to elude companies.
In the survey, respondents say that losses of income in the last 12 months increased dramatically rising from 8 percent in 2011 to 40 percent in 2013. The increase could be driven by organizations' improved abilities to identify and measure losses associated with reputational risks, and also by the impact of social media and its abilities to make any news feed viral.
Where each industry ranked this risk
1st:
Educational and Nonprofits
2nd:
Food Processing and Distribution
Hotels and Hospitality
3rd:
Banks
Pharmaceuticals and Biotechnology
Real Estate
Retail Trade
4th:
Aviation
Conglomerate
Insurance, Investment and Finance
5th:
Healthcare
Professional and Personal Services
6th:
Technology
7th:
Telecommunications and Broadcasting
Consumer Goods Manufacturing
8th:
Utilities
9th:
Non-Aviation Transportation Manufacturing
11th:
Lumber, Furniture, Paper and Packaging
Natural Resources (Oil, Gas and Mining)
13th:
Construction
Machinery and Equipment Manufacturers
14th:
Metal Milling and Manufacturing
15th:
Agribusiness
16th:
Chemicals
Government
Non-Aviation Transportation Services
17th:
Wholesale Trade
21st:
Rubber, Plastics, Stone and Cement
5. Failure to attract or retain top talent
Talent is a scarce commodity, and with the economic recovery underway, competition for talent can become fierce, says Aon. People are looking for companies which are market leaders and where their expertise will be treasured.
Overall, Aon says the survey underscores the importance for organizations to keep attracting and retaining talent a key business strategy. This includes ensuring that leaders set the tone, build relationships, show their commitment to their talent and hold themselves accountable in meaningful ways.
Where each industry ranked this risk
2nd:
Government
Healthcare
3rd:
Technology
4th:
Metal Milling and Manufacturing
Natural Resources (Oil, Gas and Mining)
Professional and Personal Services
5th:
Educational and Nonprofits
Lumber, Furniture, Paper and Packaging
7th:
Chemicals
Non-Aviation Transportation Manufacturing
8th:
Banks
Insurance, Investment and Finance
Pharmaceuticals and Biotechnology
Telecommunications and Broadcasting
9th:
Aviation
Conglomerate
Non-Aviation Transportation Services
Retail Trade
11th:
Consumer Goods Manufacturing
Construction
Machinery and Equipment Manufacturers
15th:
Agribusiness
16th:
Food Processing and Distribution
Utilities
17th:
Real Estate
18th:
Hotels and Hospitality
22nd:
Wholesale Trade
24th:
Rubber, Plastics, Stone and Cement
6. Failure to innovate/meet customer needs
Oftentimes, says Aon, companies equate innovation with technological upgrades or massive (and often costly) research and development projects, but experts say innovation is more about engaging employees at every level to think creatively about the design of powerful futures. To promote innovation, companies should foster an innovation culture from the CEO down.
Innovation often comes from the producer — not from the customer. Aon notes that Henry Ford once said that if he'd asked his customers what they wanted, they would've asked for a faster horse.
Where each industry ranked this risk
3rd:
Aviation
Technology
4th:
Conglomerate
Government
7. Business interruption
8. Commodity price risk
9. Cash flow/liquidity risk
10. Political risk/uncertainties
