Companies Vulnerable to Revenue Disruptions

Eighty-eight percent of financial executives and 83% of risk managers say their companies’ level of preparation to recover from a major disruption to a top revenue source is less than “excellent.” The degree of impact varies though, as 28% state that such an event would threaten business continuity and 100% say a major disruption to a top revenue source would have a negative impact on earnings, according to the 2003 Protecting Value Study conducted by conducted by commercial and industrial property insurer FM Global, the Financial Executives Research Foundation and the National Association of Corporate Treasurers (NACT).

Asked about areas of improvement, the nearly 400 CFOs, treasurers and risk managers polled pointed to current business continuity plans that may not be sufficiently aligned with top revenue sources at many leading corporations, as a room for improvement.   Somewhat surprising, 80% companies report no significant shift in their risk management outlook post-September 11, either strategically or operationally.

Threats to Earnings

The respondents were then asked to identify what risks pose the greatest threat to their top revenue source.   Overall, property hazards continue to collectively pose the greatest threat to earnings drivers, according to 59% of this year’s respondents.

Financial executives, however, are more likely than risk managers to cite non property-related hazards as posing the greatest threat to earnings; only 48% of financial executives cited this hazard, compared to 71% of risk mangers.   The majority of financial executives were more likely to cite other potential threats, particularly improper management and employee practices, which garnered 28% of the vote.  

Comparatively, only 29% of risk managers identified other hazards as the greatest threat.   These results indicate that financial executives may be reacting more strongly than risk managers to newly emerged threats to corporate prosperity, such as financial mismanagement.

Earnings Drivers

Twenty-eight percent of all respondents cited Personnel and Customer Support as one of their top three earnings drivers, followed closely by Manufacturing Plant, Equipment and Process (24%) and Raw Materials/Inventory (19%).   Financial executives were more likely to cite Personnel and Customer Support as their top earnings driver (36%), compared with risk managers, who were more likely to cite Manufacturing Plant, Equipment and Process (30%).

The overall response in 2003 marks a significant change from the findings in 2002 , in which respondents cited Manufacturing Plant, Equipment and Process (32%) as their top earnings driver followed by Personnel and Customer Support (20%) and IT/Telecommunications Systems (20%).

The full survey is available at www.protectingvalue.com