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Corporate clients 'must rethink' approaches to managing risk

Business transformation and expansion projects exposing them to new risks 

10 April 2013

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By Manju Manglani, Editor (@ManjuManglani)

Organisational change and restructuring, talent shortages and greater technology risks are key risks facing client businesses in 2013, according to a recent survey.

The survey found that two thirds of companies have undergone a major business transformation in the past 18 months and another ten per cent plan to do so over the next 18 to 24 months.

In response to global market shifts, corporations are building new business models, tapping into digital channels and expanding into new geographic markets, while rethinking how their supply chains and the location of their facilities fit into their globalisation strategies.

Published in Global Risk in the Transformation Age, the findings are based on a PwC survey of more than 800 executives and risk managers in businesses worldwide.

Risks facing clients

“Continued recessionary pressures, global financial shocks, increased taxation and excessive government austerity are top-of-mind risks for board members and executives because of the serious impact they can have on businesses,” said Dean Simone, head of PwC’s US risk assurance practice.

“Changes in business direction have also exposed companies to new risks, and the interplay of market and business transformation is creating complex risk linkages that can be fragile and difficult to predict. This complexity requires businesses to rethink their approach by taking a holistic, multifunctional view of managing risk.”

Close to 60 per cent of respondents said business transformation will make their companies more vulnerable to technology risks. The danger that major IT programmes will fail to deliver expected benefits is the biggest specific risk cited by survey respondents.

More than 40 per cent of survey respondents also said that social media is likely to put them at risk in the next 18 months.

Almost half of respondents expressed concern that entering new geographies and markets will expose them to further risks, particularly with regards to regulatory compliance.

More than 62 per cent also cited risks arising from organisational change and restructuring. Similarly, more than half of respondents cited the failures of new strategies and business ventures as key risks.

Two-thirds of respondents also said they are apprehensive about likely increases in taxation in industrialised markets. Similarly, about half of respondents viewed excessive government austerity measures as a powerful threat, particularly as more nations move to reduce their heavy debt burdens.

Response strategies

The survey found that companies are pushing harder to build resilience to emerging risks. Over the next 18 months, more than half of responding companies said they will be applying horizon scanning, early-warning systems, scenario planning and flexible risk-appetite statements.

Companies are also prioritising talent management through organisational measures such as developing risk-related performance incentives and conducting talent audits to identify skills gaps. Respondents said they plan increases of 79 per cent and 69 per cent, respectively, in their use of these measures.

To address growing risks from digital technology and social media, companies plan to nearly double their use of intellectual property, brand and reputation audits over the next 18 months and to take measures to mitigate the risks that are uncovered.

The survey also found that, across industries, companies will draw on more sophisticated techniques to identify hidden patterns and risk linkages in large sets of data. The fastest-growing tools will include integrated risk data warehouses (usage is expected to double) and risk dashboards (usage is expected to increase by 50 per cent).

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