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Summary
The Global CFO Study 2008: Balancing Risk and Performance within
an Integrated
Finance Organization
The Global CFO Study 2008: Balancing Risk and Performance within
an Integrated FinanceOrganization, Rogers, Stephen, Stephen Lukens,
Spencer Lin, Edwina Jon. IBM GlobalBusiness Services in cooperation
with the Wharton School and Economist Intelligence Unit, 64pages,
2008.
Topical Area: CFOs Role in Risk Management; Integrated Finance
Organization; Risk EventTrends; State of Risk Management;
Globalization and Risks..
Main Theme: This IBM study of 1,200 CFOs and senior finance
professionals reveals thatCFOs may be taking the wrong approach to
resource and risk management on a global scale. Docurrent financial
management models have sufficient flexibility to enable an
enterprise to make
the strategic transformation to a global organization? This
study analyzes this issue and providesunique data about current ERM
trends.Summary of Report: Two-thirds of large enterprises (revenues
over $5 billion) haveencountered material risk events in the last
three years. Almost half of those were not preparedfor the event.
Only half of the survey participants have any formal risk
management program.Survey results indicate that CFOs have trouble
prioritizing risk and ranked almost all risksequally as very
important. They also may be missing some important strategic
imperatives:Two agenda items that the CFOs ranked lowest in
importance managing/mitigating enterpriserisk and driving
integration of information across the enterprise are key
differentiators foroutperformers in revenue and stock price
growth.Overview of Study Findings
This CFO survey was conducted by IBMs Global Business Services
division, in cooperationwith The Wharton School and the Economist
Intelligence Unit. The team posed 34 questions tomore than 1,200
CFOs and senior-level finance professionals in five major sectors
and across 79countries. The purpose of the survey was to determine
the state of risk events withinorganizations surrounding the world,
and the status of current management processes to addressrisk
events.Key findings include the following:
Sixty-two percent of enterprises surveyed with revenues over $5
billion (U.S. dollars)encountered a material risk event in the last
three years.Of those, 42 percent admitted to not being well
prepared for the event.Forty-six percent of enterprises surveyed
with revenues under $5 billion (U.S. dollars)
had a major risk event and 39 percent were not well
prepared.
Risks arise from many activities beyond financial related risk
drivers. Eighty-fivepercent of risk types that led to a companys
market capitalization decline of 30 percentor more were
non-financial in nature.
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The most frequently mentioned risks (32 percent of respondents)
related to strategicrisks, which are risks related to markets,
customers, products, M&A activity, and otherbusiness
topics.
Geopolitical and environmental/health risks were also more
prevalent than financialrisks.
Only about 52 percent of all surveyed acknowledged having any
sort of formalized riskmanagement program.
CFOs have difficulty prioritizing risks nearly every finance
activity in the survey wascategorized as very important. But, there
were gaps as wide as 38 percent regardinghow effective they were at
tackling those activities.
Only 42 percent of respondents do historic comparisons to avoid
risks and only 32percent set specified risk thresholds, with only
29 percent creating risk-adjusted forecastsand plans.
The study identified two major differentiators for financial
outperformance:-Increased effectiveness in driving integration of
information across the enterprise-
Increased effectiveness in supporting, managing, and mitigating
enterprise risk
The Integrated Finance Organization
The authors interviews and statistical analyses assisted them in
understanding whatcharacteristics information integration across an
enterprise should possess. They consider thesecomponents part of
good governance and what they call the, Integrated Finance
Organizationor IFO.IFOs help to drive integration of information
across the organization. Analysis shows thatcommon data
definitions, a standard chart of accounts, and standard common
practices enterprisewide are strongly correlated to increased
effectiveness at driving integration of information.Thus, globally
mandated standards for all finance operations across the enterprise
can be a
critical success factors and IFOs help provide that
leadership.The survey finds that enterprises with IFOs had revenue
growth rates nearly double that of theirindustry peers. IFOs are
often more preparedfor risk because they are more aware of risk,
whichallows them to be more responsive to risk events.IFOs
self-report that they are 1.4 times more likely than non-IFOs to be
effective at supporting,managing, and mitigating enterprise risks.
IFOs are twice as likely to be prepared for major riskevents, and
IFOs claim they are 1.3 times more aware of risks. Thus,
integration of key financecomponents within the organization
creates significant strategic advantage.
Providing the TruthOutperformance and risk management are about
getting to the truth. IFOs get the truth in aconsistent manner as a
result of their enterprise standardization. The consistent accuracy
ofinformation helps move an organization from transactional to
analytical handling of information- taillights to headlights. In
contrast, non-IFOs often find that every layer and
organizationalsegment requires a level of interpretation or
reconciliation to provide a unified point of view.For them, the
lack of integration makes the roll-up of information difficult and
often lessmeaningful.
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Two actions are essential to providing the truth: establishing
global standards through processownership and simplifying the
enabling systems and organizational structures.Managing the
Risk
Survey findings indicate that enterprises are looking to the CFO
for leadership in riskmanagement. CFOs are uniquely positioned to
determine and guide the overall enterprise riskprofile. CFOs
intrinsically understand that reward is tied to risk. The authors
assert two actionsthat are keys to managing risk: the CFOs
orchestration of risk management and the convergencewith
performance management. Seventy percent of the survey respondents
of enterprises that arealready effective at supporting, managing,
and mitigating risks formally document andcommunicate the
enterprises appetite and tolerance for business risk. They are
looking moreand more towards using the same techniques that they
use to measure performance to managerisks. Effective organizations
proactively manage risks to close performance gaps.CFOs can be a
leader in this charge, armed with facts and truths about the
enterprise.
Source: The Global CFO Study 2008: Balancing Risk and
Performance within an IntegratedFinance Organization, Rogers,
Stephen, Stephen Lukens, Spencer Lin, Edwina Jon. IBM
GlobalBusiness Services in cooperation with the Wharton School and
Economist Intelligence Unit.Published by the Wharton School,
University of Pennsylvania, and IBM Global BusinessServices, 64
pages, 2008.Download a copy ofTheGlobal CFO Survey
2008:http://www-935.ibm.com/services/us/gbs/bus/html/2008cfostudy.html
Abstract Prepared By: ERM Initiative Faculty and Essie
McLoughlin, 2007-08 Master ofAccounting student.
http://www-935.ibm.com/services/us/gbs/bus/html/2008cfostudy.htmlhttp://www-935.ibm.com/services/us/gbs/bus/html/2008cfostudy.htmlhttp://www-935.ibm.com/services/us/gbs/bus/html/2008cfostudy.html
