Global business risk rose sharply in first quarter of 2005, according to new Corporate Risk Barometer

Worldwide business risks increased sharply over the past three months, according to new research from the Economist Intelligence Unit based on a survey of international risk managers. The findings, which are taken from the Economist Intelligence Unit's new Corporate Risk Barometer, indicate that business risk increased most significantly in the US, the Middle East and Russia in the first quarter of 2005. The findings show firms believe business risks in the US are increasing much more rapidly than in Europe or Japan.

The Corporate Risk Barometer, which was developed by the Economist Intelligence Unit and is sponsored by ACE Insurance, Cisco, Deutsche Bank and IBM, provides insights into what risk managers see as the most important risk issues and challenges around the world. The findings, illustrated in the charts below, are based on a survey of 137 risk managers. Approximately half of the respondents were from financial services companies, with other respondents drawn from a cross-section of 15 other industries. The Economist Intelligence Unit plans to track changes in the global risk environment by repeating the Corporate Risk Barometer survey on a quarterly basis.

Global risk hotspots: a business perspective

The Risk Barometer survey asks executives to indicate whether risk is increasing or decreasing in a number of major global markets. According to the survey, risk managers believe business risks have increased significantly in the Middle East, Russia and the US over the past three months. Financial services companies are even more concerned about business risk in the US, scoring it highest in the Regional Risk Barometer out of a choice of 14 countries and regions. The Barometer score for risk across the world was also high, indicating that the majority of executives in the survey believe that the global business environment has become more risky in recent months.

Categories of risk

The most significant issues facing business today, according to respondents to the first Risk Barometer survey, are reputational risk (defined as the threat of any event that can damage a company's reputation) and regulatory risk (defined as problems caused by new or existing regulations). These two risk categories received the highest scores in the Risk Barometer, indicating that they are seen as more significant issues than market risk, foreign exchange risk and country risk by the majority of executives in the survey. The third most significant threat cited by executives is IT network risk, which encompasses network security breaches and IT systems failure.

Other categories of risk that have recently received high exposure in the media, such as terrorism and natural hazard risk (for example earthquakes or hurricanes), receive negative scores in the Barometer, indicating that they are a low or very low priority for most risk managers in the survey.

"The focus for risk managers is shifting from financial risk to less understood areas, with reputational and regulatory issues topping their list of priorities," says Daniel Franklin, editorial director of the Economist Intelligence Unit. "By regularly tracking changes in the risk environment, the Risk Barometer will help risk professionals understand how their peers are responding to these new trends and challenges."

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