Managing in an Age of Earnings Uncertainty

The 2013 AFP Risk Survey offers a snapshot of which risks more than 500 senior financial professionals consider to be the biggest threats to their companies’ earnings.

More than half (53%) of senior financial professionals say they have greater difficulty anticipating risks to their companies’ earnings than they did before the financial crisis since many of the variables they consider when making strategic decisions have become more unpredictable. Most (86%) believe these challenging circumstances are here to stay. This second edition of the report examines how companies can develop a sustainable competitive advantage in an increasingly uncertain environment.

The Wall Street Journal's CFO Journal recently reported on the survey. Download the article to find out more about Oliver Wyman’s views on how executives should respond to increasing earnings uncertainty.

By the Numbers

For the 2013 AFP Risk Survey (published by the Association for Financial Professionals in collaboration with Oliver Wyman) more than 500 chief financial officers and treasurers were asked to identify what they perceive to be the biggest risks to their earnings over the next three years. The table below summarizes the results.

1What is the AFP Risk Survey?

It's a study that identifies and analyzes the most significant risks to companies' earnings – arguably the most important issue facing business today

The Association for Financial Professionals and Oliver Wyman collaborate on this survey of more than 500 Chief Financial Officers, Treasurers, and other top finance professionals.
2What are some of the key findings of this year's report?

The key finding this year is that we are entering a new age of earnings uncertainty in which many of the critical variables that impact financial results are becoming unpredictable.

More than half of our respondents are having more difficulty forecasting earnings. The majority believe this is the new normal.
3Why is this happening?

One reason for this is that the underlying risk drivers for companies' earnings are rapidly changing. Traditionally, corporate risk management has focused on the impact of macroeconomic trends and broad market risks to the firm’s performance.
In this year's survey, respondents cited three key risks completely outside the normal purview of Treasury and Finance – customer satisfaction/retention, regulatory risk, and geopolitical risk – as the risks they thought would have the greatest impact on their firm’s earnings over the next three years.
4What are companies doing in response?

To remain competitive in the new environment, our survey shows that most companies are investing in information technology systems, increasing revenue growth targets, launching new products, and expanding into new countries. Note that the latter three of these actions point to firms trying to out-grow the risk impacts. More than half the respondents are also committed to improving their risk cultures in part by having more risk reviews at the executive level.
5What should companies be doing?

Those firms that are anticipating a riskier future are re-examining their risk appetites, changing strategic decision making process, and enhancing risk analytics capabilities at a disproportionately higher rate than other organizations. We believe that that kind of proactive risk management activity will, in the near future, separate the leaders in those sectors from the rest of the pack.