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A Risk Top 10 for 2010
Strategic change management heads a new ranking of risk hot spots.
Kate O'Sullivan - CFO.com | US
January 12, 2010

After the economic turmoil of 2009, CFOs could be forgiven for trying
to relax a bit. But the new year will offer plenty of reasons to stay
awake at night, according to a new survey by the Corporate Executive
Board (CEB).

The business-research company recently asked finance executives to
identify the top "hot spots" for risk in 2010. Heading the CEB's top
10 list is strategic change management (see below for the complete
list). "For the past two years, executives have been in a more
defensive posture, but this year they are thinking about how to set
the company up for success in the future," says Kate Guerra, CEB's
research director. "They are really focusing on risks that could stand
in the way of their strategic objectives."

A few of the 10 hot spots are holdovers from past years. Fraud, for
example, is a perennial concern, although one that may grow in 2010 as
companies shrink their internal-audit and finance staffs. Third-party
relationships, number 7 on the list this year, were also among the
biggest risk areas in 2008 and 2009 as CFOs watched banks, customers,
and suppliers struggle to meet their commitments.

But the prospect of economic recovery creates new risk hot spots, such
as capacity: companies face the possibility of being caught
short-handed should business suddenly revive. Indeed, in CFO's most
recent Global Business Outlook Survey, conducted each quarter with
Duke University, nearly half of all respondents said their companies
had taken steps in the past 20 months that they feared could hurt
their businesses' future growth prospects.

The CEB survey also found that more than 40% of companies had reduced
their 2009 research and development budgets by more than 5%,
potentially harming their future competitiveness. "Some of these big
bets that companies make in down cycles are the things that redefine
them for the future," says Guerra. "People are asking themselves
whether their companies are appropriately investing in and researching
potential new breakthrough products."

The CEB's 10 high-risk areas cover so many different parts of a
business that it may seem impossible for a finance executive to watch
all of them. "Each company's circumstances will be different," says
Guerra. "You have to really evaluate what you believe the highest
risks are for your company and the situation you are in."

Here are finance executives' top 10 risk hot spots for 2010:

1. Strategic change management. The upheaval of the past year and the
desire to seize opportunities during the recovery will make for a lot
of changes, including mergers, acquisitions, and divestitures. These
shifts leave a lot of room for controls to fall through the cracks and
can create new liabilities.

2. Capacity. Faced with uncertain demand, companies risk both over-
and understaffing. Timing capital expenditures, such as new facilities
or equipment, will also pose a challenge.

3. Incentive plans. Compensation is under extreme scrutiny in the wake
of the recession and could pose a risk for public companies.

4. Human resources. Layoffs have left many companies with skill gaps
and possible holes in their compliance structures.

5. Fraud. Widely thought to pick up (or be revealed) in down times,
fraud can be easier to commit at companies that are short-staffed and
under pressure, which would describe most businesses today.

6. Innovation/R&D. Companies that have cut back in this area during
the downturn risk falling behind their competitors.

7. Third-party relationships. The collapse of Lehman Brothers opened
CFOs' eyes to just how careful and far-reaching they need to be in
evaluating third parties.

8. Shared services. Under pressure to cut costs, finance executives
are exploring new locations for their back-office functions. These
changes can affect companies' control structures and processes.

9. Inflation/Deflation. Currency risk remains an open question for 2010.

10. Tax management. Recession-scarred states are looking to raise
funds through new taxes and stricter enforcement of existing tax laws.

--
Regards,
Parthiv Mehta

Go Green

P Please consider the environment before printing this e-mail. 1 ton of
paper = 17 trees. Reduce. Reuse. Recycle.

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