Now is a Great Time to Discuss Risks for 2011
September 7, 2010 Leave a comment
As we head start to wrap-up the third quarter of 2010 and begin to finalize budgets and forecasts for 2011, it seems very appropriate to examine the big risks that are impacting companies and the overall economy. A recent report by Ernst & Young on the top ten risks for 2010 is a great starting point for these types of discussion. Below is their list for 2010 which will most likely change dramatically in 2011.
- Regulation and compliance has resumed the Number 1 spot it last held in 2008, with concerns about this risk voiced across the majority of sectors. One of the most current worries among businesses is that the uncertainty surrounding regulation is stalling business decision-making and planning. (Rising from Number 2 in the 2009 report.)
- Access to credit - Although this risk remains high, viewpoints regarding the availability of credit varied across sectors, with some interviewees indicating that the threat has receded. However, rising levels of government debt may have a strong impact on the cost of credit in the future. (Falling from Number 1 in the 2009 report.)
- Slow recovery or double-dip recession – Although the financial crisis has abated, a fiscal crisis has emerged in its place. There is no guarantee that global growth will be sustained if stimulus packages are withdrawn. (No change from the 2009 report.)
- Managing talent – Companies face a number of threats linked to the management of human capital. The global war for talent continues to pose a challenge in some sectors, the approaching retirement of the baby boomers looms over others and, the debate over compensation structures is ongoing, especially in the financial sector. (Rising from Number 7 in the 2009 report.)
- Emerging markets – With emerging economies likely to dominate global growth, succeeding in these markets has become a strategic imperative. (Rising from Number 12 in the 2009 report.)
- Cost cutting – Although this risk remains at Number 6, specific concerns among sectors have shifted from last year. Commodity price inflation and pressure from low cost competitors are now rising challenges. However, pressures to control costs to preserve financial viability have receded. (No change from the 2009 report.)
- Non-traditional entrants – This risk fell two places from 2009, as higher costs of capital and declining demand sapped the strength of some emerging competitors. Further, incumbent firms in transitioning sectors, having had some years to adjust to new entrants, have been able to shore up their positions. (Falling from Number 5 in the 2009 report.)
- Radical greening – In the current economic climate, environmental issues are not at the top of the agenda, and this challenge has slipped down the rankings this year. However, companies continue to strive to stay ahead of shifting consumer preferences and government regulation. (Falling from Number 4 in the 2009 report.)
- Social acceptance and corporate social responsibility (CSR) have become increasingly important over the last decade and it is not a surprise to find this risk entering the top 10 this year. In the current business climate, where there are continuing reputational threats and a rising political backlash, firms will need to tread carefully to maintain (or rebuild) the trust of the public. (New this year.)
- Executing alliances and transactions – Over the past year there has been a noticeable decline in merger and acquisition activity as finance has become costly. However, rescue mergers in the wake of the financial crisis and regulatory changes that may force new transactions remained topical. (Falling from Number 8 in the 2009 report.)
How do you see the list evolving next year? Those who predict the changes and manage the risks successfully will have a significant competitive advantage resulting in major gains. Those who do not have a forward-looking view of how these changing risks will impact their business will suffer as a result. If you are interested in having a facilitated risk discussion, email us at NavigateSuccessfully@WheelhouseAdvisors.com.