Risky business

The coming 12 months look set to provide finance directors with a turbulent ride as a number of business issues combine to destabilise the global economy. In light of this, Ernst & Young, in collaboration with Oxford Analytica, has produced a report, Strategic Business Risk: 2008 – The top 10 risks for business.

The report draws on the expertise of 70 analysts from around the world and from more than 20 disciplines that shape the business world, including finance, law, economics, geopolitics and regulation.

Regulatory & compliance risk
The seemingly never-ending onslaught of compliance and regulation shows no signs of abating and is seen as the greatest challenge for 2008. The growth of businesses into more and more countries combined with regulatory intervention in various industries paints a grim picture.

Global financial shocks
Few industries will escape the impact of major global financial shocks, while industries such as biotech and utilities will, according to analysts, struggle to raise capital. Meanwhile, banks, asset management and insurance companies will suffer direct losses from market movements. If recession hits, oil and gas companies could well be facing low prices.

Aging consumers & workforce
We’ve known it for a long time, but there still isn’t a clear way of tackling the risks associated with the grey pound. The issue is two-fold – producing innovative products that will appeal to an increasingly older consumer and coping with an aging workforce.

Emerging markets
While undeniably providing huge growth potential – and in many instances, having already done so – the risks with emerging markets are easy to see. Currency, operational, regulatory, language and cultural risks are all evident. Recent events have also illustrated risks with compliance and quality control.

Industry consolidation/transition
Although many analysts are predicting a slowdown in M&A activity, there will still be plenty to go around. As a consequence, companies must adapt to new business environments and, if necessary, keep ahead of the competition in any M &A activity.

Energy shocks
Fluctuations in energy prices and access to supplies are seen as a key challenge to the energy sector, with short-term losses a real possibility in order to meet demand. Beyond the energy sector, large swings in energy prices could trigger economic shocks.

Execution of strategic ­transactions
“Strategic risks often result from an attempt to take advantage of major opportunities,” says the report. “Nowhere is this more evident than in the area of transactions.” A frighteningly small number of transactions create value for shareholders.

Cost inflation
While we have been operating in a low-inflation economy for some time, a return to high inflation is a major risk. No industry sector would be immune from such a development.

Radical greening
There are two major risks associated with climate change. First, the challenges posed by the environment and what business must do to meet them. Second, the risk that current estimates of climate change are too conservative, which will result in draconian measures to help cope with new scenarios.

Consumer demand shifts
It is the task of business to identify and respond to changes in demand. Such a challenge moves to be a strategic risk when the changes are significant, fast or unexpected.

Useful links
The Ernst & Young report can be found at http://tinyurl.com/yvyva3
The web seminar in full can be found at http://tinyurl.com/2ytmqt