By Sam Sliman
President, Optimal Solutions Integration, Inc.
As if the regulatory pressure of Sarbanes-Oxley and Basel II is not enough to contend with, corporations must soon exhibit proof of a formal and effective risk-management program in order to secure a positive credit rating from Standard & Poor’s (S&P). The good news: SAP GRC provides the solutions and services companies need to satisfy S&P’s enterprise risk management (ERM) evaluations and keep their good credit.
Creditworthiness is a key indicator of a company’s market performance, management quality and financial health. S&P is one of the world’s foremost providers of independent credit ratings. S&P’s new ERM evaluations for non-financial companies should not be taken lightly.
The Skinny on S&P’s ERM Evaluations
In May of 2008, S&P announced that it will expand its credit ratings analysis for non-financial institutions to include ERM evaluations.
ERM analysis is nothing new for S&P, which has been doing this since 2005 for banks, insurers and, to some extent, energy companies. S&P’s decision to perform. ERM analysis on non-financial companies reflects a growing concern among investors over today’s economic turbulence as well as a heightened sense of responsibility on S&P’s part to provide investors with an accurate, reliable view of a company’s ability to identify, prepare for and weather present and future risks that might impede its ability to fulfill its financial obligations.
In preparation for its ERM evaluations, S&P solicited commentary from the business community from November 2007 through March 2008. During Q3 2008, S&P will conduct information and benchmarking discussions with impacted companies. It is expected that S&P will begin company-specific scoring and rating sometime in 2009. S&P’s proposed ERM scale for corporations includes ratings of excellent, strong, adequate and weak.
According to S&P, as its ERM evaluation methodology matures, the effect on credit ratings will be significant. Firms with very highly developed ERM programs most likely will see a positive impact on ratings and firms with unexpectedly poor ERM programs will see a negative impact.
Understanding that there is no single formula for ERM, S&P will evaluate companies within a general ERM framework having four major analytical components: risk management culture & governance; risk controls; emerging risk preparation; and strategic risk management
SAP GRC for Good Credit
Compliance mandates such as Sarbanes-Oxley in the U.S., the Turnbull Report in the U.K, and Japan’s JSOX regulations, among others, are primary drivers for the GRC market, as are risks posed to organizations -- particularly those with global operations --by a dynamic array of regional, environmental, legal and political events.
Top drivers for performance management solutions include the need to increase the speed and accuracy of budgeting and forecasting, the ability to consolidate financial, legal and managerial reporting for global multi-language, multi-currency operations, and overarchingly, the desire to formulate strategy and drive its application throughout the company.
Countering today’s current mix of point solutions and fragmented, siloed approaches to GRC and performance management, SAP delivers a host of unified, fully integrated performance optimization applications -- SAP’s umbrella term for enterprise performance management (EPM), GRC and any future performance management categories.
SAP’s recently announced portfolio of Financial Performance Management (FPM) products brings together the very best of existing SAP products and those acquired from Business Objects, as well as other recent acquisitions -- Pilot Software, OutlookSoft, Virsa Systems, etc. FPM includes applications for strategy management, planning & consolidation, and profitability & cost management.
SAP’s tight integration of GRC and performance management -- as evidenced by SAP’s FPM portfolio -- provides the deep, real-time business insight and holistic, enterprise-wide reporting capability companies need to identify key risks, set acceptable risk- exposure levels and, most importantly, put in place meaningful, industry- and company-specific risk-mitigation strategies that are sure to satisfy S&P’s most stringent ERM evaluation criteria.
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