Top 10 Business Risks for 2009

For the second straight year, Ernst & Young has released a report ranking what the firm sees as the top 10 risks for global business in the coming year. This year's top 10, compiled in collaboration with Oxford Analytica and based on interviews with more than 100 analysts, contains a few surprises.

Not that anyone will likely be stunned by the ascent of the credit crunch to the Number 1 slot, or "deepening recession" coming out of nowhere to No. 3.

But the threat posed by non-traditional market competitors -- companies entering a sector from adjacent markets or distant geographies -- has leapt onto the risk radar for 2009. It's ranked fifth, up from sixteenth in the 2008 list. Companies based in the emerging economies will muscle in on new market segments and niche areas, E&Y notes (echoing reports from The Boston Consulting Group this year; see this article).

Reputational risk soared from No. 22 in 2008 to No. 10 for 2009, propelled no doubt by assorted Wall Street disasters. The rise of "radical greening," from No. 9 to No. 4, suggests that companies are becoming more aware of the real damage they risk if they neglect environmental and sustainability challenges.

Here are the top 10 risks for 2009, with the 2008 rankings for comparison:

1. The credit crunch. (Number 2 in the 2008 report.)
2. Regulation and compliance. (Number 1 last year.)
3. Deepening recession. (New this year)
4. Radical greening. (9)
5. Non-traditional entrants. (16)
6. Cost cutting. (8)
7. Managing talent. (11)
8. Executing alliances and transactions. (7)
9. Business model redundancy. (New)
10. Reputation risks. (22)

Eight of the top 10 are operational and strategic risks, notes Todd Tueller, partner and risk transformation leader in Ernst & Young's advisory services practice, who has noticed a shift in companies' attention toward these areas and away from financial and controls exposures. "Now the first questions companies ask are: 'What business are we in? What are the industry risks? What's our unique positioning within the industry, and what gives us competitive advantage? Let's list the strategic imperatives that are tied to our overall strategy, and then let's list the processes that are tied to the strategic imperatives, and then the risks that are tied to those. So it's very much a top-down process."

Tueller expects to see an accelerated convergence of risk management and performance management in the coming 12 months. "It's difficult to talk about performance management without having a discussion about the risk indicators," he points out. "And it's difficult to talk about transforming your finance function without talking about world-class steps you can take on your journey to managing enterprise risks."

The E&Y report, which contains in-depth commentary on the top 10 from the firm's analysts as well as a brief treatment of some "below-the-radar" risks (ranked 11 -- 15), is available here.