Business risks today are global, spanning industries as well as borders. According to Aon Risk Solutions, even the most seasoned risk managers find it a challenge to anticipate and respond effectively to the increasingly expansive and evolving threats to their organizations. 

Aon Risk Solutions released its bi-annual 2013 Global Risk Management Survey, and found that, on average, reported loss of income from the top 10 reported risks has increased from 28 percent in 2011 to 42 in 2013, while reported risk readiness has dropped 7 percent.

For the third straight survey, “economic slowdown/slow recovery” has been ranked as the top risk facing organizations, while “political risk/uncertainties” entered the top 10 for the first time. 

Conducted in 2012’s fourth quarter, the survey gathered input from 1,415 respondents, which represent public and private companies of all sizes around the globe across many industries.

Click “Next” to see the top 10 risks as reported by the survey respondents.

e1. Economic slowdown/slow recovery

Since concerns over the world’s economy will not go away soon, Aon says organizations need to embrace it for the long-term and from a global perspective. We are no longer sitting on an island by ourselves. What happens on the other side of the world can have a direct impact on every organization, whether it has international operations or not. For example, during the financial crisis, the drop in real estate values, record high foreclosure rates and default rates on loans in the U.S.triggered a worldwide credit crisis that affected businesses everywhere, making it harder for them to obtain loans and expand. 

Therefore, says Aon organizations must plan for this risk by learning from lessons in the past, stepping out of their day-to-day operations and thinking in terms of organizational readiness for the future.

Where each industry ranked this risk

1st:

Aviation 

Chemicals 

Conglomerate

Consumer Goods Manufacturing

Construction

Hotels and Hospitality

Lumber, Furniture, Paper and Packaging

Machinery and Equipment Manufacturers

Metal Milling and Manufacturing

Non-Aviation Transportation Manufacturing

Non-Aviation Transportation Services

Professional and Personal Services

Real Estate

Rubber, Plastics, Stone and Cement

Technology

Wholesale Trade

2nd:

Banks 

Government 

Retail Trade 

3rd:

Educational and Nonprofits

Healthcare

Insurance, Investment and Finance

Pharmaceuticals and Biotechnology

Telecommunications and Broadcasting

5th:

Natural Resources (Oil, Gas and Mining) 

Utilities

6th:

Agribusiness

Food Processing and Distribution

reg2. Regulatory/legislative changes

Since the financial meltdown in 2009, Aon says governments around the world have stepped up their regulatory functions and are becoming more robust in setting and determining policies for businesses, not simply for the financial sector, but for industries across the board. While most companies accept the need for rules to govern business and are accustomed to working within regulatory constraints, the sheer volume and complexity of these rules can still be daunting, not to mention the frequency with which they change. 

Aon notes the irony in regulations — designed to help businesses mitigate risks — being perceived as a key risk factor facing businesses. More companies see the increasingly stringent regulations as intrusive and burdensome.

Where each industry ranked this risk

1st:

Banks 

Government 

Healthcare 

Insurance, Investment and Finance 

Pharmaceuticals and Biotechnology 

Telecommunications and Broadcasting 

Utilities

2nd:

Educational and Nonprofits 

Non-Aviation Transportation Services 

Professional and Personal Services

Real Estate

3rd:

Agribusiness

Natural Resources (Oil, Gas and Mining)

Non-Aviation Transportation Manufacturing

4th:

Aviation

Wholesale Trade

5th:

Lumber, Furniture, Paper and Packaging

Rubber, Plastics, Stone and Cement

6th:

Chemicals 

Construction

Metal Milling and Manufacturing

8th:

Consumer Goods Manufacturing

Food Processing and Distribution

Hotels and Hospitality

Retail Trade

9th:

Conglomerate

Technology

11th:

Machinery and Equipment Manufacturers 

c3. Increasing competition

Increased competition has a direct and lasting impact on earnings, says Aon. At present, a weakened global economy means that consumers have less disposable income and companies are competing for a smaller base of clients with decreased spending power. Therefore, increasing competition has made it imperative for companies to focus on innovation, brand recognition and product differentiation to survive and thrive.

Where each industry ranked this risk

1st:

Retail Trade

2nd:

Aviation 

Conglomerate

Construction 

Insurance, Investment and Finance 

Pharmaceuticals and Biotechnology 

Rubber, Plastics, Stone and Cement 

Technology

Telecommunications and Broadcasting

3rd:

Hotels and Hospitality 

Non-Aviation Transportation Manufacturing 

Non-Aviation Transportation Services

Professional and Personal Services

Wholesale Trade

4th:

Chemicals 

Consumer Goods Manufacturing 

Educational and Nonprofits 

Healthcare 

Lumber, Furniture, Paper and Packaging 

Metal Milling and Manufacturing 

5th:

Banks

Machinery and Equipment Manufacturers 

6th:

Agribusiness

9th:

Real Estate

10th:

Food Processing and Distribution 

14th:

Natural Resources (Oil, Gas and Mining)

18th:

Utilities

26th:

Government

brand reputation4. Damage to reputation/brand

Since reputational events often arrive with little or no warning, organizations are forced to respond in real time and economic losses are mounting. Aon says the unpredictable nature of reputational and brand-related events continues to elude companies.

In the survey, respondents say that losses of income in the last 12 months increased dramatically rising from 8 percent in 2011 to 40 percent in 2013. The increase could be driven by organizations’ improved abilities to identify and measure losses associated with reputational risks, and also by the impact of social media and its abilities to make any news feed viral.

Where each industry ranked this risk

1st:

Educational and Nonprofits

2nd:

Food Processing and Distribution

Hotels and Hospitality

3rd:

Banks

Pharmaceuticals and Biotechnology

Real Estate

Retail Trade

4th:

Aviation

Conglomerate

Insurance, Investment and Finance

5th:

Healthcare

Professional and Personal Services

6th:

Technology

7th:

Telecommunications and Broadcasting

Consumer Goods Manufacturing

8th:

Utilities

9th:

Non-Aviation Transportation Manufacturing

11th:

Lumber, Furniture, Paper and Packaging

Natural Resources (Oil, Gas and Mining)

13th:

Construction

Machinery and Equipment Manufacturers

14th:

Metal Milling and Manufacturing

15th:

Agribusiness

16th:

Chemicals

Government

Non-Aviation Transportation Services

17th:

Wholesale Trade

21st:

Rubber, Plastics, Stone and Cement

top talent5. Failure to attract or retain top talent

Talent is a scarce commodity, and with the economic recovery underway, competition for talent can become fierce, says Aon. People are looking for companies which are market leaders and where their expertise will be treasured.

Overall, Aon says the survey underscores the importance for organizations to keep attracting and retaining talent a key business strategy. This includes ensuring that leaders set the tone, build relationships, show their commitment to their talent and hold themselves accountable in meaningful ways.

Where each industry ranked this risk

2nd:

Government 

Healthcare

3rd:

Technology

4th:

Metal Milling and Manufacturing 

Natural Resources (Oil, Gas and Mining)

Professional and Personal Services

5th:

Educational and Nonprofits

Lumber, Furniture, Paper and Packaging

7th:

Chemicals 

Non-Aviation Transportation Manufacturing

8th:

Banks 

Insurance, Investment and Finance

Pharmaceuticals and Biotechnology 

Telecommunications and Broadcasting

9th:

Aviation 

Conglomerate

Non-Aviation Transportation Services 

Retail Trade

11th:

Consumer Goods Manufacturing 

Construction 

Machinery and Equipment Manufacturers

15th:

Agribusiness

16th:

Food Processing and Distribution

Utilities

17th:

Real Estate

18th:

Hotels and Hospitality

22nd:

Wholesale Trade

24th:

Rubber, Plastics, Stone and Cement

failure to innovate6. Failure to innovate/meet customer needs

Oftentimes, says Aon, companies equate innovation with technological upgrades or massive (and often costly) research and development projects, but experts say innovation is more about engaging employees at every level to think creatively about the design of powerful futures. To promote innovation, companies should foster an innovation culture from the CEO down. 

Innovation often comes from the producer — not from the customer. Aon notes that Henry Ford once said that if he’d asked his customers what they wanted, they would’ve asked for a faster horse.

Where each industry ranked this risk

3rd:

Aviation

Technology

4th:

Conglomerate

Government

Hotels and Hospitality

Machinery and Equipment Manufacturers

Non-Aviation Transportation Services

Retail Trade

Telecommunications and Broadcasting

5th:

Consumer Goods Manufacturing

Healthcare

Insurance, Investment and Finance

6th:

Educational and Nonprofits

Pharmaceuticals and Biotechnology 

Professional and Personal Services 

Rubber, Plastics, Stone and Cement

7th:

Lumber, Furniture, Paper and Packaging

8th:

Agribusiness

Metal Milling and Manufacturing

11th:

Wholesale Trade

12th:

Banks

13th:

Chemicals

Food Processing and Distribution

16th:

Non-Aviation Transportation Manufacturing

19th:

Natural Resources (Oil, Gas and Mining)

20th:

Real Estate

21st:

Construction

31st:

Utilities

business7. Business interruption

While business interruptions typically conjure up the image of major disasters that create havoc and impact whole communities, such as hurricanes, earthquakes or terrorist attacks, Aon says businesses cannot ignore those occurring on a smaller scale that might not make it to the headlines — a power outage or water main break in the immediate area, fire in a room of a building, a bomb threat, or a workplace violence incident.

Due to its unpredictability, Aon says organizations must effectively address this risk by identifying all potential threats to their business and evaluating their mitigation options for each threat. In addition, organizations also need to consider their coverage options for non-damage related losses, such as off-site service interruptions to utility suppliers, which was a major cause of disruption from Sandy. More and more insurers are now creating provisions within policies to limit their exposure to such occurrences, which could leave the insured without coverage and foot the bill for extra expenses.

Where each industry ranked this risk

2nd:

Metal Milling and Manufacturing 

Utilities

3rd:

Lumber, Furniture, Paper and Packaging

4th:

Conglomerate

Retail Trade

5th:

Chemicals

Technology

6th:

Consumer Goods Manufacturing

Food Processing and Distribution

Insurance, Investment and Finance 

Natural Resources (Oil, Gas and Mining)

7th:

Non-Aviation Transportation Manufacturing

8th:

Hotels and Hospitality

Professional and Personal Services

Rubber, Plastics, Stone and Cement

Telecommunications and Broadcasting

9th:

Machinery and Equipment Manufacturers

10th:

Educational and Nonprofits

11th:

Healthcare

12th:

Non-Aviation Transportation Services 

Pharmaceuticals and Biotechnology

Real Estate

13th:

Government

17th:

Agribusiness

Wholesale Trade

18th:

Banks

21st:

Aviation

23rd:

Construction

c8. Commodity price risk

Survey respondents indicated they are less prepared to manage commodity price risk than in Aon’s last survey, with nearly 40 percent of companies feeling they are not ready to manage it in the current business environment.

However, the percentage of companies experiencing losses from commodity prices has decreased 35 percent, from 45 percent in 2011.

The survey results reflect concerns for the strong pricing in several markets, including agribusiness, crude oil, and metals, says Aon.

Where each industry ranked this risk

1st:

Agribusiness

Food Processing and Distribution

Natural Resources (Oil, Gas and Mining)

2nd:

Chemicals 

Consumer Goods Manufacturing 

Lumber, Furniture, Paper and Packaging 

Machinery and Equipment Manufacturers 

Rubber, Plastics, Stone and Cement 

3rd:

Metal Milling and Manufacturing 

4th:

Aviation 

Conglomerate

Construction

5th:

Non-Aviation Transportation Manufacturing 

Wholesale Trade

7th:

Utilities

11th:

Retail Trade

12th:

Non-Aviation Transportation Services

14th:

Technology

15th:

Hotels and Hospitality 

24th:

Banks

27th:

Pharmaceuticals and Biotechnology 

29th:

Insurance, Investment and Finance 

Real Estate 

31st:

Professional and Professional Services

32nd:

Educational and Nonprofits

34th:

Telecommunications and Broadcasting

36th:

Government

37th:

Healthcare

cash9. Cash flow/liquidity risk

Aon says that although fundamentals for generating cash flow have slowly become better on a global level — with the global GDP increasing $12 trillion since 2009 — many industries still face challenges driving top line growth.

Breaking this risk down into subcomponents — an organization’s ability to generate cash flow and its ability to access capital — Aon says a clear picture emerges of the general challenges that each category has posed since 2009.

Where each industry ranked this risk

3rd:

Construction

5th:

Non-Aviation Transportation Manufacturing

Wholesale Trade

6th:

Non-Aviation Transportation Services

7th:

Machinery and Equipment Manufacturers

Professional and Personal Services

Real Estate

8th:

Banks

Metal Milling and Manufacturing

9th:

Aviation

Conglomerate

10th:

Consumer Goods Manufacturing

Healthcare

Hotels and Hospitality

11th:

Chemicals

Food Processing and Distribution

Retail Trade

Rubber, Plastics, Stone and Cement

12th:

Pharmaceuticals and Biotechnology

Technology

13th:

Agribusiness

Educational and Nonprofits

Utilities

15th:

Telecommunications and Broadcasting

16th:

Government

19th:

Insurance, Investment and Finance

Natural Resources (Oil, Gas and Mining)

20th:

Lumber, Furniture, Paper and Packaging

political risk10. Political risk/uncertainties

At the end of 2012, Aon says Pew Research Center compiled 600 major news events for that year. Among those, more than half were related to political and military conflicts. 

Often, Aon explains, an organization’s perception of the political risk associated with a certain location and industry can be either under- or overestimated. With political risk rising up on the boardroom agenda, Aon says companies need to consistently assess their political and security risks in all the countries and regions in which they operate or transact business.

Where Each Industry Ranked This Risk 

2nd:

Utilities

5th:

Government

7th:

Construction 

Educational and Nonprofits 

Natural Resources (Oil, Gas and Mining) 

8th:

Healthcare 

Rubber, Plastics, Stone and Cement 

Telecommunications and Broadcasting 

9th:

Aviation 

Conglomerate

Food Processing and Distribution 

11th:

Chemicals 

Non-Aviation Transportation Manufacturing 

Non-Aviation Transportation Services 

12th:

Banks 

Consumer Goods Manufacturing 

Real Estate 

13th:

Insurance, Investment and Finance 

15th:

Machinery and Equipment Manufacturers 

Metal Milling and Manufacturing 

17th:

Lumber, Furniture, Paper and Packaging 

Pharmaceuticals and Biotechnology 

Professional and Personal Services 

19th:

Wholesale Trade 

21st:

Agribusiness

22nd:

Hotels and Hospitality 

23rd:

Retail Trade 

24th:

Technology

 

See also: