In this age of digital transformation, businesses need to evolve their risk management teams if they intend to survive digital disruptions and other potential risks ahead.
Much can go wrong when running a business; from disrupted supply chains to a global pandemic, many external factors can be out of a company’s control. Therefore, it is imperative to have contingencies in place to mitigate risks without major damage to the business.
While larger companies can afford complex risk management systems in place to prevent them from suffering immense losses, small to medium-sized enterprises (SMEs) have no equivalent to assist them in minimising their potential risks.
Many risk managers go underappreciated for the gravity of their work, and are often overworked and slowed down by an over-reliance on manual risk management processes. In the past decade, technology has simplified operations across various other sectors so that there is less reliance on the manual, and tasks can be accomplished in a shorter time frame. However, this has not yet been the same for risk and compliance teams. To successfully revolutionise risk culture, businesses must embrace new technology and take a less reactive, more proactive approach to risk management.
Identifying And Avoiding Risks
SMEs account for 99.8% of the UK’s business population and the demand for effective risk management across every sector has called for a risk evolution. Data-driven technology has proven to be the way forward. Traditionally, risk management programs have taken a reactive approach to risk assessment. These risk management programs were developed to assess, report, and mitigate risks during and after they happened, with an emphasis on reducing the fallout and minimising damage to the company.
Proactive risk management starts by assessing prospective risks, identifying the drivers associated with their root cause, and then determining the likelihood of the risk occurrence as well as the probability of the negative impact of such an event. It attempts to quantify the harm caused by a specific effect, the mechanisms driving the impact as a manifestation of mismanaged risk, and the total losses to the business, whether in terms of reputation, competitive advantage, or revenues.
Proactive risk management encompasses and supersedes reactive risk management. Reactive risk management strategies are used to develop preventative measures against known risks, whereas proactive risk management strategies incorporate creative problem solving, predictive analysis, and a focus on root causes of risk, leveraging deep analysis of past, current, and future data sets to identify relevant risks before they occur. Then developing contingencies for both unforeseen and established risk drivers. It employs closed-loop feedback, which leverages tools such as artificial intelligence (AI), process automation, and data analytics, in conjunction with ‘the human component’ of creative thinking and problem-solving.
Talent Management In Risk
Most businesses consider talent management in risk roles to be a critical concern. However, only a few companies are on the cusp of achieving their aim to run relevant and successful talent initiatives in their risk department. Although some corporations have launched specific programs and begun focusing on personnel management, most are trailing behind recommended practices and have avoided focusing on talent management in recent years. To achieve long-term transformation, businesses must proactively rethink their people-management strategy in the risk function.
There are numerous instant steps any business can take. These include defining collective talent management target requirements for the risk function, conducting an appropriate diagnostic along major talent management dimensions to compare the company’s talent management capabilities to industry best practices, and conducting a bottom-up transparency screening of the current workforce to identify patterns as well as talent and skill gaps.
Furthermore, risk departments must adopt five globally acknowledged and practical strategic talent-management approaches. The first four initiatives are mostly concerned with improving individual talent management capabilities, whereas the fifth is primarily concerned with collective talent management:
- Attract and hire skilled risk management professionals with compelling stories.
- Employees must be developed through implementing holistic learning and cross-company training.
- By providing clearly defined career routes, you may groom individuals into well-rounded leaders.
- Employees should be adequately rewarded based on risk-specific and diversified performance assessments and incentive schemes.
- Promote company-wide connectedness through focused cross-functional efforts.
Risk Management And Information Technology
Cybersecurity refers to the collection of technologies, methods, and practices that are meant to secure networks, computers, programs, and data against attacks, damage, or unwanted access. Risk managers benefit from top cybersecurity businesses that disclose the most recent threats, malware, and system breaches regularly. This will provide them with a greater understanding of the hazards that might arise when utilising technology, allowing them to be more alert and pick the proper security defences to avert risks. The most difficult aspect of cybersecurity is the continually changing nature of security concerns. The previous strategy has been to spend the majority of resources on the most critical system components and guard against the most serious known threats, which has resulted in some less key system components being undefended and some less significant risks going unprotected.
The advent of information technology has had an impact on every aspect of our lives, including education, marketing, business, entertainment, and politics. Risk management is one of the domains that has been heavily affected by this trend since it is mostly data-driven. Every day, information technology makes it easier to automate procedures that begin with risk identification and finish with monitoring. Big Data, analytics, mobile apps, cloud computing, enterprise resource planning (ERP), as well as governance, risk, and compliance (GRC) tools, are all critical for risk management. These technological improvements provide risk managers, and anyone in management or outside the business who is working to improve, with opportunities.
Dynamic Risk Management For Uncertain Times
Companies with strong risk cultures have several key traits. Most importantly, genuine ownership and responsibility for risk culture rest with front-line employees, with executive-level accountability for cultural deficiencies.
To be fully lived, culture must be tied to an institution’s day-to-day business operations and outcomes. At the same time, someone needs to be responsible for coordinating the definition, measurement, reporting, and reinforcement of risk culture, within a risk function. True, coordinated transformation is impossible without an enterprise-wide perspective. Finally, risk culture must be continuously monitored. A strong culture requires upkeep and reinforcement.