Financial performance of technology companies is tied to certain “red zone” risks, critical non-financial risks where a company must take action to become adequately prepared.
These critical non-financial risks include business decline due to economic conditions, hiring and retaining employees, performance failure of vendors and suppliers, and failure to meet growth targets, according to a survey by CFO Research, sponsored by insurer Travelers and titled, “The Finance View of Non-financial Risk for Technology Companies.”
In addition to dealing with the four “red zone” risks, technology firms say they grapple with two other non-financial risks— breach of a company’s electronic or online data and U.S. regulatory compliance, according to the survey.
The study defines non-financial risks broadly as events or actions, other than financial transactions, that can negatively impact the operations or assets of a company. Using this definition, 62 percent of survey respondents agree that non-financial risk has become more of a concern in recent years.
Four of the main non-financial risks are “red zone” risks – those that finance executives say are critical, but for which they believe their companies are less prepared.
“Clearly, any of these directly impact a company’s success,” said David Owens, director of research for CFO Research. “They are top of mind for many finance executives at technology companies.”
For example, the study says, many technology companies rely on an extended and exposed supply chain. With 74 percent of respondents agreeing that their companies must now “get to market with upgrades or new products faster than ever,” ensuring the smooth functioning of the supply chain becomes even more important.
Non-financial risks are real – and according to the research results – they have a definitive impact. For example, 44 percent of companies in the survey incurred unexpected increased costs in recent years from non-financial risks, 36 percent experienced damaged customer relationships and 33 percent were impacted by a business interruption or delay.
“Our survey results illustrate the importance for everyone involved to heighten their awareness of emerging risks and understand potential impacts to their business,” said Ronda Wescott, president of Global Technology, Travelers.
Executives in the survey stressed that diligence and “keeping informed” are keys to being prepared for the unknown and the unexpected. According to survey respondents, success comes from becoming proactive in managing non-financial risks and building a culture in which all employees are attuned to the consequences of non-financial risks.
The study is based on 209 electronic survey responses from senior finance executives at U.S. companies. Survey respondents work for a variety of technology-related companies. CFO Research is part of CFO Publishing.