The benefits of risk management for your organisation
The state of the global economy is evolving quickly.
Global markets have been rocked by Covid 19, which has the potential to launch the next stage of the world economy. A new era is about to begin given the effects on society and the speed of technical advancements in areas including biotechnology, artificial intelligence, computing power, data, space, alternative fuels, and batteries. Thus, why then is risk management crucial? because a period of significant transformation is about to begin. Our lives as we currently live them will soon change.
Since we just know that they won't resemble in any way what we've experienced in our lives, we don't know what advice to give our children regarding their future profession options. The best we can do is teach kids transferable qualities that will help them succeed in whatever they do, such as creativity, communication, leadership, teamwork, and building a strong work ethic and personal resilience.
How can our experience help us in the future?
There are significant lessons to be learnt from our recent past, which had the most rapid economic growth and technical advancement in human history, before we rush into a future marked by hyper-change.
The eye-opening video up top shows how much business has changed in the past 25 years. This isn't about the market valuation of the top 10 global corporations. Instead, the focus is on how change impacts every firm, regardless of its size or industry.
Also, it's not just about particular companies. Several industries have grown, while others have disappeared. The most serious threats may not always come from well-known adversaries. Instead, they might be a well-funded mega-corporation like Google or Amazon or a startup idea that has the potential to become a unicorn in a matter of months.
How do we approach change?
Although change is the overarching theme, risk management is the talent needed to manage, pivot, or adapt. Each and every organisation must have the ability to manage risk. That is done on the front lines, yet it is a board responsibility. Every firm deals with it, accepts it, and has to manage it because most authorities and standards mandate it.
Given its significance, it is regrettable that most businesses still find it difficult to transform risk management into a dynamic, worthwhile process. Instead, one of two groups best describes the bulk of strategies:
i) Risk management using common sense
Small firms and startups typically use gut sense to control risk. Although they are aware that it is not ideal, it is the simplest choice when they lack professional risk expertise. Regrettably, this is done on an as-needed basis and only according to instinct. A negative outcome is essentially inevitable given the paradoxical and complex nature of risk (risks are bad for company, but they must be taken), as well as the numerous decisions that business executives must make.
Which errors happen and how they affect a company's bottom line depends on luck. As a result, more start-ups, projects, change programmes, and marketing campaigns fail than succeed, according to overall data. Your intuitive abilities are limited. Your good fortune will eventually run out.
ii) Existing risk management is ineffective.
Big or regulated companies frequently formalise their risk management processes. Some even employ risk management professionals and use software. Nonetheless, the vast majority of people think that these protocols still fail to produce the desired results.
Business leaders frequently complain that risk talks are too high-level, that risks never change, that updates are too anecdotal, that the method is more of a reporting exercise, and that it is necessary to change the culture and "embed" process and thinking.
In the end, risk management isn't producing the alterations that aid in commercial judgements. The actual decisions, however, are made outside of the process and in other venues. As a result, many of these larger organisations invest a lot of time on producing risk reports and documentation, but in reality manage risk on an individual basis, frequently using intuition, much like their smaller counterparts.
Why do even "best practises" fail to deliver results?
Despite the fact that many organisations have adopted widely regarded best practise frameworks and guidelines for risk management, including COSO ERM and ISO31000, many are still looking for ways to improve returns through a more engaged culture and a greater consideration of risk in decision-making.
A more thorough research and analysis of risk register reports, culture aside, reveals that they are:
The risk management approach must be simple and beneficial to appeal to stakeholders who have other "day jobs," according to the hundreds of business executives we've spoken with. As a result, it must always add value, especially when dealing with top stakeholders. Asking them for updates on a regular basis makes the process become a job and is a prescription for failure.
How can we improve our ability to adapt to change?
We suggest a risk management strategy that is more useful, viewing it as a process for solving problems. With this straightforward paradigm shift, risk management becomes much more action-oriented and has significant, positive effects. In actuality, the process develops into precisely the actions that leaders must take to proactively manage their teams, projects, businesses, and goals:
A culture-driven process so that the process can be driven by the culture
The concept of culture is nebulous and complicated, incorporating attitudes, behaviours, and trends. When the risk team speaks independently about risk culture and your company has its own cultural agenda, this becomes more difficult. They must be coordinated and linked.
The above-mentioned practical process enhancements are already beginning to have an impact on organisational culture. The acronym ETCHED helps us describe risk culture in more detail. Boards and Leaders will quickly realise there are gaps and pathways to each element when asked to think honestly about each part of ETCHED. By addressing these, the risk process is promoted as a crucial factor in the development of more productive business-wide behaviours, attitudes, and tendencies.
Challenging the status quo
Embedded risk management
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