Non-financial risks - KPMG Germany (2024)

FAQs

Do non-financial risks have financial implications? ›

The finance function's role in shaping how NFR is quantified – how it is 'made real' for senior management, the board and other stakeholders – cannot be overstated. All NFR is quantifiable – in other words, its impact can be measured – in financial terms.

Defined broadly as all risk types excluding credit, market, interest rate, and liquidity risk, NFR encompasses operational, regulatory, environmental, social and governance risks. Ineffective management of these risks has led to substantial losses across industries, emphasizing the need for enhanced risk practices.

Examples are pandemics, floods and other weather events. Conduct risk means that the behavior of the cooperation's employees leads to losses. Cyber risk and IT risk are possible losses due to security breaches. Compliance risks are risks related to Governance, risk management, and compliance.

How to Quantify Non-Financial Risk (NFR) Value at Risk (VaR) is a way to quantify the risk of potential losses, i.e., the expected loss from risk exposure. Factor Analysis of Information Risk (FAIRTM) is one of the most widely used VaR models for cybersecurity and operational risks.

NFR is a broad term that is usually defined by exclusion, that is, any risks other than the traditional financial risks of market, credit, and liquidity.

Non-financial risk is operational and strategic risk

These can be summarised as operational risk (including HR, culture & conduct, IT, data & cyber, business disruption, fraud, legal & compliance, assets, and infrastructure), and strategic risk.

Teamwork and collaboration: The ability to work effectively in a team environment is essential for success at KPMG. Technical expertise: Depending on the role, KPMG may look for candidates with expertise in areas such as accounting, finance, tax, data analytics, cybersecurity, or other related fields.

The company laid off 2% of U.S. employees in February, cuts that affected its advisory segment. In contrast, this round "will affect all areas of the firm, including its audit business," The Financial Times reports.

KPMG firms have been recognized by Forbes as one of the World's Best Management Consulting Firms, receiving stars in all 27 industries and categories, including the travel, transport and logistics sectors.

Non-financial risks include (but are not limited to): • environmental risks (including climate-related risk) • social risks (including understanding changing social norms) • supply chain transparency and other supply chain risks • health and safety risks • technology risks (including business continuity) • cyber ...

What is risk adjustment for non-financial risk? ›

Therefore, the risk adjustment for non-financial risk represents the compensation that the entity would require if it was to charge the policyholder an explicit separate amount for bearing non-financial risk.

Non-financial risks, such as operational, reputational and strategic risks, are becoming increasingly important in the banks' risk map compared to more established financial risks. On the one hand, this is due to sometimes spectacular losses.

Appropriate tools must be carefully selected and implemented in the daily business process. Modern tools for risk forecasting and operational risk efficiency, supported by artificial intelligence, must be established to establish an efficient Non-Financial Risk management process.

Financial risks originate from financial markets and might arise from changes in share prices or interest rates. Non-financial risks emanate from outside the financial market environment and could be consequences of environmental or regulatory changes or an issue with customers or suppliers.

Non-financial KPIs are not expressed as monetary values—in other words, they aren't directly associated with dollar signs. They focus on other aspects of the business and are often leading (forward-looking) measures, whereas financial KPIs are lagging measures.

Risks associated with finances can result in capital losses for individuals and businesses. There are several financial risks, such as credit, liquidity, and operational risks. In other words, financial risk is a danger that can translate into the loss of capital. It relates to the odds of money loss.

Appropriate tools must be carefully selected and implemented in the daily business process. Modern tools for risk forecasting and operational risk efficiency, supported by artificial intelligence, must be established to establish an efficient Non-Financial Risk management process.

While financial factors such as profitability and cash flow are essential for survival, non-financial factors such as brand reputation and customer loyalty contribute to sustainable growth. Ignoring non-financial factors may lead to short-term success, but may undermine long-term stability.