FM Global study depicts CFOs’ actual losses and preparedness
Risk. It’s everywhere and takes many forms. Resilience requires defending against all types of risk. But how should CFOs prioritize their risk management investment?
To get insight into the risk management practices of chief financial officers (CFOs), FM Global conducted a study, titled Finance’s Role in Operational Risk Management: CFO Research on Building a Resilient Company. One hundred CFOs managing the risks of organizations valued between US$500 million and US$10 billion in a variety of industries responded to the study. The results illustrate how CFOs have been affected by risk loss and how many plan to become more resilient in the future.
How prepared were the CFOs for the array of risks, including new and recurring hazards?
There is no doubt that highly sophisticated equipment improves productivity – that is, until that equipment fails to operate. This study discovered that two-thirds (66 percent) of the organizations suffered an equipment failure and just one-third (34 percent) were prepared for it. By having plans in place to deal with such business disruptions, the prepared CFOs remained resilient.
Data breaches or cyber attacks
Cyber risk is a relative newcomer to the risk management world and organizations are just beginning to get their arms around it. As business increasingly relies on the internet for everything from communicating with customers to operating essential equipment, opportunity for a cyber attack, with profound consequences, increases. This study revealed that just under a quarter (24 percent) of CFOs were prepared for the cyber attack or data breach they faced, while 59 percent had no plan in place to recover from this growing hazard.
Natural disasters have forever wreaked havoc upon the world. And scientific research suggests that, due to climate change, major weather events are increasing in frequency and magnitude. Natural disasters were behind the interruption of business operations of more than half (52 percent) of CFOs surveyed and just a third (33 percent) of them had been prepared for the wrath.
Most of the participating CFOs (68 percent) believe their revenues will be more vulnerable due to operational risk and most (58 percent) also fear that managing risk may prevent them from attaining their revenue targets. However, fewer than half (41 percent) of those surveyed plan to focus on preventing operational risk and a comparable number – 38 percent – consider efforts to prevent loss as more important than insurance coverage.
“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,” says Eric Jones, operations vice president and global manager of FM Global’s Business Risk Consulting. “The findings reveal the opportunity for financial executives to implement stronger plans with increased data, to help move resilience forward within their organizations.”
The vast majority in this study (86 percent) recognize the need to plan to be more resilient in the future. Currently, more than half (54 percent) say they have neither developed nor tested recovery plans for an incurred loss. Fewer than half (46 percent) will be able to follow a plan to get back in business.
Identify and prepare for risk
So where are your vulnerabilities lurking? The 2017 FM Global Resilience Index can help you uncover these vulnerabilities based on the location of your operations and suppliers. For details, see the article “How Resilient Is Your Business?” on page 9 of this issue. FM Global clients can obtain account-level rankings of the resilience of their properties worldwide by logging on to MyRisk® starting in June. MyRisk is FM Global’s private and secure website that allows clients, brokers and authorized business partners to manage risk improvement efforts, prepare for impending weather threats and access important policy information for their facilities around the world.
For risk management tools and resources, log on to fmglobal.com. And to request a personalized assessment of your operational risk, contact FM Global’s Business Risk Consulting.
Knowing your risk propensities – and how to prevent them – will help you prioritize plans to maintain resilience.
This article first appeared in Reason Magazine Issue 1, 2017, which you can read here.