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How enterprise risk management has improved since the global financial crisis, and where practices are still lagging.

In the article "Best and Worst Practices in ERM", Oct 24, 2013 Treasury & Risk magazine, Max Rudolph, the founder and principal of Rudolph Financial Consulting, says we may be headed for another bubble. He lists four areas, but for most of our Treasury and CFO's, excessive leverage may be the most apropos. As for risk management, Mr. Rudolf is seeing more time working on vendor and client risks, such as single point failures, i.e., vendors located in a single geographical area. As for clients, any single or group of clients that would adversely affect your company should they leave is a major risk. Do you agree that leverage to debt is becoming problematic, should interest rates rise and are you working on dampening your risk from single point failures?

Answers

Topic Expert
Mary Driscoll
Title: Senior Research Fellow
Company: APQC (American Productivity and Quality ..
(Senior Research Fellow, APQC (American Productivity and Quality Center)) |

Hi Wayne,

I think it's hard to generalize about leverage levels. One should obviously look at capital structure in term of strategy, relative marketplace position, credit rating, ability to hedge interest rate risk, etc.

RE: your question about supply chain disruption risk, I did a research project earlier this year and found some startling things. Here's a summary followed by a link to a free Executive Summary.

The majority of large, global organizations are now concerned about the risk of serious physical disruption of their supply chains due to high-impact natural disasters, extreme weather, or political turmoil.
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Over 70% said they had extended the global reach of their sourcing activities and pruned their supplier lists over the past five years with the intent of reducing the cost of goods sold.
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Two out of three report that they have key supply chain partners in world regions known for any or all of the three external risk factors mentioned above.
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Three-quarters of organizations surveyed report that they experienced at least one unexpected supply chain disruption in the past 24 months, and nearly that many said the event drew sustained attention from, or intervention by, their top executives.
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Most organizations are working to reach a better balance between sole-sourcing (which reduces costs) and multi-sourcing (which reduces risk). Moreover, 43% have reviewed the level of safety stock they keep on hand, and one out of five decided to increase that investment.
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There is a strong sense among those surveyed that more resources need to be devoted to risk analysis and management, with a particular emphasis on gaining insight into business continuity planning and management.

http://www.apqc.org/knowledge-base/documents/managing-risk-supply-chain-disruption-survey-summary-report

--Mary D

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