Whether an overseas supplier fails to ship product, labor unrest erupts, regulations tighten or a natural disaster hits a major trading center, nothing affects corporate earnings like financial uncertainty.  So say finance executives in a new survey released by the Association for Financial Professionals (AFP).

The 2012 AFP Risk Management Survey asked CFOs, corporate treasurers and other senior finance executives about risks that worry them now, those most likely to cause uncertainty in the next three years, and actions they are taking to mitigate those risks.  It is the first in a series of annual risk-management surveys to be published with collaboration from the Global Risk Center of the Oliver Wyman Group.

Three quarters (72 percent) of responding organisations said their top to concern is managing financial uncertainty, including the risks associated with credit, liquidity, interest rates and currency/foreign exchange.

Respondents also cited risks associated with macroeconomic conditions—such as the pace of economic growth and inflation (38 percent)—and business/operations risks such as supply chain and/or production disruptions, litigation, labor and outsourcing (36 percent). 

External risks (country, regulatory, natural disaster) and commodity risks (power/heat, crude oil & distillates, agricultural and metals) are also concerns for a significant share of organisations, but to a lesser degree. A full 41 percent of respondents expect even more earnings uncertainty in the coming years.

"Uncertainty is here to stay," says Jim Kaitz, AFP's president and CEO. "One way organisations can take control of rising uncertainty in their earnings is by adopting a new mindset and making more risk-adjusted decisions.  The ones that do this effectively will have a competitive advantage.”

“Most of the critical variables that companies need to consider in developing their short and long-term strategies are becoming increasingly difficult to forecast,” adds Alex Wittenberg, Oliver Wyman Partner and head of Global Risk Center. “This survey illustrates that long-term macroeconomic and environmental trends such as those discussed in the 2012 Global Risks Report are already having a significant impact on companies’ strategies.”

More than half of organisations that view financial-related risks as a major concern identify liquidity and credit risks as having the most significant potential impact on their earnings over the next three years.  Forty-six percent have similar concerns about interest rate risk.  Just over a quarter (27 percent) believes that currency/foreign exchange risk will have a significant impact on their earnings.

Liquidity risk is a bigger concern for smaller organisations than for those with annual revenues greater than $1 billion, even though larger organisations tend to have greater earnings exposure from currency/foreign exchange risk.  This could be due to larger organisations’ longer supply chains and larger international customer base.