The smaller risks cause the greatest fear of disruption to UK businesses, according to a survey.
Catastrophic and terrorist events and the risks associated with them are frequently given big publicity, but the risks facing
UK firms are higher at a smaller, practical level.
According to a survey by FM Global, Managing Business Risk in 2006 and Beyond the largest obstacles for many UK-based companies are addressing the risks of globalisation, outsourcing and supply chain risks, as well as insufficient time, personnel and budget.
The obstacles that UK-based financial executives give are "insufficient time" (46%), "inadequate personnel" (25%), and "insufficient budget" (14%). And balancing risk management with other corporate priorities is more of a challenge for UK-based companies than for those based in France or Germany.
"Supply chain" risks (31%) and "fire and explosion" (17%) are the most significant threats to the key revenue drivers of many UK-based companies.
Companies' supply chains continue to become increasingly complex as many companies outsource more of their business processes and information technology to low-cost countries. A disruption to the supply chain could result in a dramatic adverse impact on the business.
Ken Davey, managing director for FM Global in EMEA and Asia-Pacific, says UK companies are increasingly stretching their supply chains. "The resultant exposure to risk must be addressed, if companies are to avoid a potential impact on profitability."
Chief concerns driving companies to improve risk management practices are a potential loss of market share and company devaluation as well as workforce cutbacks, exiting lines of business and other management driven actions.
"It is encouraging to see such a high proportion of financial executives in the UK recognising that a major disruption to their firms' top revenue driver could have a disastrous effect on their companies' market share. But they need to act upon this concern," says Davey.
Consequently, companies are taking the opportunity to demonstrate prudent risk management actions and a greater degree of accountability to various stakeholders.
Corporate governance legislation is also a driving factor in increasing UK-based companies' focus on risk management, compared to firms based in other European countries.
However, the report warns that many companies still have much work to do to elevate risk management as a corporate priority, as evidenced by the high percentage of companies that report insufficient time, personnel and budget to address their top risks.
As for outsourcing of business processes and information technology to lower-cost countries, this can strengthen competitiveness, but multinational companies are typically locating and relying on vital aspects of their operations in areas subject to a greater frequency of natural disasters, different safety standards, legal structures and less corporate control.
"Increased globalisation may make economic sense, strengthen productivity and enhance competitiveness, but it comes with a price and needs to be supplemented by an effective business continuity strategy in order to safeguard against a potentially devastating impact on operations," says Davey.
Outsourcing risks
Eighty-four percent of UK-based respondents say the risks associated with outsourcing are a "moderate" to "high" priority or concern.
Additionally, 72% say risks associated with globalisation are a "moderate" to "high"priority or concern for their organisations.
Companies surveyed revealingly do not view "terrorism/sabotage" as a major business threat with executives in France and Germany sharing similar views.
David Gamble, executive director of Airmic, shares the study's conclusion that many companies still have much work to do to elevate risk management as a corporate priority.
"This finding is in line with Airmic's own research and experience. While many companies do adopt a Total Risk Management approach, as we would recommend, others are more piecemeal.
"We believe the picture is improving as boards become more sophisticated in their understanding of risk management, but there's still much education to be done." IT
Key findings of business risk report
