What are the new approach to risk identification and evaluation
Identification, assessment, and control of financial, legal, strategic, and security threats to the assets and profits of an organisation constitute the process of risk management. These dangers or risks could be caused by a wide range of things, such as monetary instability, legal liabilities, poor strategic management, mishaps, and natural calamities.
Your company may only see a little impact from an unexpected incident, such as a slight increase in overhead expenditures. In the worst-case situation, though, it may be disastrous and have severe repercussions, like a heavy financial load or possibly the liquidation of your company.
An organisation must allocate resources to minimise, monitor, and regulate the impact of adverse occurrences while optimising favourable ones in order to mitigate risk. How to best identify, manage, and reduce important risks can be determined with the aid of a consistent, comprehensive, and integrated approach to risk management.
Knowing what you know. Besides, what you don't...
The concept of known knowns and known unknowns was infamously misunderstood by Donald Rumsfeld, the US Secretary of Defense during the Iraq War following 9/11. Business executives must understand that, despite experience, complacency is the largest error anyone can make. This is true regardless of the model within which these principles exist. especially when it comes to risk and business. Without a doubt, proactive risk assessment and identification are essential to success.
The environment is constantly changing. Several companies with long records of success and market dominance fail every year. An energetic generation that is increasingly making decisions finds the bright and new more enticing thanks to new disruptors with novel ideas, perspectives, technologies, and innovations. In fact, "the establishment" feels and looks rather old-fashioned.
So, how can we predict what will bite us next and where should we concentrate our efforts? We discussed the most essential risk an organization is facing in the first post of this mini-blog series, "Why risk management is vital for your business": whether or not its business will remain relevant and viable.
Let's imagine your company is extending its market share and you are fortunate enough to be in that market. Congratulations, your company probably has relevance. But it's obvious that you're still in trouble (there are examples abound of IPO flops, founders shamed, shareholder revolt etc.). How do you therefore consider the hazards you face? How do some of these unknowns become known to you?
The knowledge you have first
Looking at what you already know as a subject matter expert in your own field is a good place to start. What are the main dangers that could prevent you from achieving your goals or succeeding? Nonetheless, even those companies will be aware of their larger goal, vision, or "cause for being," even if they don't have well defined or even agreed-upon objectives.
Strive to expand your horizons and seek out the opinions of others on the team and in the larger organisation, including a variety of viewpoints from various disciplines and departments. You'll discover that using this strategy will produce unexpectedly complete outcomes.
New viewpoints: a straightforward method to develop a comprehensive perspective
As risks can arise from anyplace, it's imperative to adopt a broad, comprehensive perspective. The "STO" (Strategic, Tactical, and Operational) framework, which encourages thinking from these several perspectives, is one of the most straightforward but helpful frameworks. CEOs and boards frequently concentrate on strategic risks while overlooking operational hazards that might bring the entire business to its knees.
In a similar vein, those in operations might not consider some more important strategic challenges, such as threats to the very foundation of the business model. Third, people with backgrounds in finance can find it difficult to look past these and other tactical dangers. Your thinking can be shaped using these many lenses and perspectives by using this straightforward technique to obtain a more comprehensive picture.
A risk environment for unknowable’s
The "risk universe" is a theoretical representation of all dangers that your company may encounter. In the context of unknown unknowns, this is a significant claim. It's not a crystal ball, as no model can possibly predict the future, but it functions similarly to the STO model above by laying forth categories of risks to elicit thought.
Assume you run a hotel chain. You could have first overlooked the serious threat posed by new market disruptors from the "sharing economy," like Airbnb. You may have been more inclined to draw the comparison if you had been asked to consider how business models or technological advancements have changed.
In a similar vein, neither Covid nor Brexit were particularly included in any risk universe. Yet, larger words that help with risk identification and appraisal can include macroeconomics, geopolitics, health and safety, or pandemics.
There are a number of highly thorough risk universe models. These have been combined and synthesised by us into a smaller (and, in our opinion, more relevant) list of 26 dangers. They have been incorporated into TEAM Risk, a user-friendly, affordable risk management software platform. Based on the structure of your organisation, the system may even suggest hazards that it believes are pertinent to your company.
Despite the fact that this is a helpful shortcut for risk assessment, it is still necessary to consider categories and define risks and their implications in great depth. They won't be perceived as a significant problem set with a clear course of action until then. Be aware of both your knowledge and your ignorance. Do something about it after that. Knowing your risks is the first step; not taking action is the same as knowing nothing at all. This is the second of a four-part series that will assist you in considering your risks in a broad sense. Giving you extra stuff to worry about is the last thing you need if your plate is already full.
As a result, our upcoming piece is intended especially for corporate executives who are juggling multiple tasks and are short on time and resources. Now, become a blog subscriber to never miss an update.
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