@Risk

Last week, I posted about the contradictory results of a recent study that suggest companies are not increasing risk management budgets, despite a perception that risk management is growing in importance.  Now, unfortunately, there’s even more evidence to bolster the notion that organizations are taking a short-sighted approach to risk management, favoring cost cutting instead, and failing to adequately recognize the impact that procurement has on financial risk exposure.

“The Cost of Control,” released by Professor Adrian Done of Barcelona’s IESE Business School and Basware, is a major global study investigating the issues currently impacting finance and procurement. The 15-page report features insights gathered last month (May 2009) from 550 CFOs from the USA, UK, Scandinavia, Germany, Spain, Benelux and France, and here are a few of the key findings:

• A mere 28% of survey respondents said that they believe procurement has a significant impact on financial risk exposure.
• Less than half (46%) see any level of integration between procurement and finance processes.
• 64% of respondents rated cost cutting as top priority.
• Only 39% cited reducing risk as a priority.
• Remarkably, participants in the survey admitted that nearly 60% of indirect spending is left untracked. Equally as alarming, only 50% of purchasing processes are automated.

“Businesses today are defined by their supply chains and some of the high profile business failures of the last 12 months point to this as a root cause. Finance departments across the globe have been guilty of ignoring the real value that their procurement teams can bring for decades now, so there is real truth in the suggestion that CFOs aren’t making the most of what can be an invaluable asset in the fight against the recession,” says Professor Done. “The subsequent finding that only 46 percent of financial chiefs see real integration between purchasing and finance processes makes this particularly alarming, as it represents a major break between two departments that should be working closer than ever to combat the downturn.”

I couldn’t agree more. Focusing solely on cost cutting is detrimental to wider strategic imperatives, and ultimately can weaken your position once the economy turns around. What’s more, CFOs need to recognize that supply chain operations are integral to risk and  fundamental to both bottom line performance and cost savings goals.

To see all of the survey results, visit www.basware.com/control (registration required).