2021: What next for Risk Management?
After the bedlam of 2020, at ABM Risk Partnership we thought it timely to reflect on what is in store for 2021 - not necessarily in terms of individual risks, but more from the perspective of issues facing risk management professionals in general.
Few would dispute that Covid-19 was the single biggest risk event of 2020, given the massive disruption to business, the economy as a whole, and indeed the lives of each and every one of us. But in focussing only on Covid, we risk ignoring the plethora of threats and opportunities (i.e. risks) that continually present themselves. In 2020, natural disasters, civil unrest, dramatically changing political landscapes, and other horrific events on top of Covid-19 made it all too easy to overlook the achievements and progress made. Events such as the first manned commercial flight to the International Space Station, the eradication of polio in Africa, or the development of not one but several coronavirus vaccines in record time.
If it is a list of specific risks you are after then there is a plethora of ‘Top Risks of 2021’ type reports out there. We would recommend looking at the World Economic Forum’s Global Risks Report, the Allianz Risk Barometer 2021 or the Institute of Internal Auditors OnRisk 2021 Report.
So, as we move into 2021 how should risk professionals be scanning the horizon for the threats and opportunities that will inevitably come their way? What are the key considerations, tools, and techniques that will enable Risk Management to help the organisation create and protect new and existing value?
In our view, it comes down to your current Risk Management maturity. If you have a risk function that is mature in its approach, with a robust Risk Management Framework and high levels of business understanding and engagement, you will likely continue to effectively manage the threats to achievement of your organisational objectives and exploit the opportunities created along the way. Indeed, the additional challenges created by Covid are likely to have strengthened your organisational resilience.
If on the other hand, your risk function is still developing or you have found yourself in continual crisis mode due to the pandemic, then things will invariably be more challenging. If your business is already struggling to deal with the fallout of Covid-19, another significant risk event will be disproportionately more impactful and may indeed become the final straw. And we cannot overlook that fact that the risks that were there before Covid are still there.
Your approach then must be twofold: firstly, anticipating and interpreting the threats and opportunities that may present themselves to your business and secondly, increasing the organisation’s risk capability i.e. how well embedded it is to day-to-day business operations. Each of these are worth exploring in further detail.
Whilst anticipating and interpreting threats and opportunities is ‘core business’ for the risk function, it is fair to say that the approaches we frequently see are extremely inconsistent. This task is made easier by categorising threats and opportunities into:
Strategic: the risks that arise from the key initiatives / decisions we make, either to pursue an opportunity or respond to unsatisfactory performance outcomes
External: risks originating from outside the organisation and which can only be responded to rather than prevented
Operational: risks arising from our business operations and therefore completely in our control
These categories are explained in greater detail in my book ‘The Uncertainty Effect - An Introduction to Risk Management’ (available on Amazon) along with the types of risks that fit into each of these categories.
By contemplating the threats and opportunities in these risk categories, organisations can deal more appropriately with each type of risk and also develop and enhance their generic risk response capabilities.
As an example, ABM uses an iterative risk assessment process to cover the various stages of a strategic initiative:
Opportunity: Initially, the initiative is considered using the Opportunity Risk Assessment tool and methodology. This considers the initiative from the following perspectives:
- the benefits the initiative brings to the organisation - alignment to the organisation’s strategic goals - the fit with the organisations culture and values - whether it is within the approved Risk Appetite
Project: If, after the initial Opportunity Risk Assessment, a decision is made to proceed with the initiative, then a Project Risk Assessment is conducted. The focus of this phase is on the risks to successful delivery of the initiative - scheduling, cost, resource allocation and achievement of planned outcomes
Business as Usual: Successful completion of the Project sees the initiative transferred to a ‘business as usual’ status with an existing or new business unit. At this point the risk assessment process is ongoing using the Threat Risk Assessment (or Opportunity Risk Assessment if further opportunities can be realised)
ABM’s unique Risk Management Framework ecosystem gives you the tools and techniques needed to manage all your business threats and opportunities – be they strategic, external, or operational risks. It is presented in a practical and easy to use package that is tailored to your organisation. Visit our website (www.abmrisk.com.au) or get in touch to find out more.
Of course, having the best system and tools in the world, will only have limited effectiveness if the capability and engagement of your people is lacking.
The challenge is always the same - getting people to understand their role in risk management and providing them with the necessary skills to do so effectively.
What has changed in the past 12 months, is the environment in which many organisations find themselves. Working from home is now the norm not the exception, revenue growth is at best uncertain and at worst negative, and cost pressures are creating situations where the temptation is to reduce investment - including in risk capability.
We are all familiar with the importance of ‘tone-at-the-top’ when it comes to Risk Management. It takes true leadership in these times to recognise that the future of the organisation depends on adapting to the new normal, whatever that may be in the coming weeks, months, and years. And that adaption and agility is enhanced by a robust and embedded risk management capability.
This is not just the ability and experience of a central risk function, but the training, upskilling and empowerment of people at all levels of the organisation to be part of shaping the direction of the business. It is being encouraged to speak up about opportunities to accelerate the business and thanked for identifying threats and potential mitigating actions that keep the business on track.
If this sounds like a pipe dream for your organisation, then you have probably been the victim of a ‘let’s just throw some more training at them’ approach to capability gaps. The good news is that there is a better way.
ABM has experience in competency and capability development in a number of industries and has built its own Enterprise Risk Management Competency Map, designed to identify, plan, and deliver the needed competencies to each level, and each role within your organisation.
So what are the benefits of this approach?
It saves money! Whether through better decision making when considering opportunities or mitigating threats, or by showing insurers you are managing your risks in a systematic way, it translates to dollars saved.
It gains buy in from employees. When they see that decision makers consider all the data, understand the business context, prioritise resources and seek their input, they get on board with the program.
It shows your business stakeholders (partners, suppliers, contractors, financiers, and regulators) that you leverage risk management disciplines to make the most of your business which in turn benefits them.
We appreciate that financial pressures exist in most businesses at present and that whilst any change management activities must be cost effective, they can’t be ignored. In fact in our experience, and potentially as a flow-on effect from Covid-19, businesses are more open to change now that at any time in recent years.
The challenge is often identifying where to start – we will be pleased to help you think through the first steps with a free two-hour initial consultation.
Written by Anthony Wilson