TL;DR – Surviving and thriving is more than just making sure everything is in order.
Long term survival and the ability to sustain profits over a period of time is the ongoing challenge of every business yet we all know that today’s world is full of an unprecedented amount of threats and disruptions – be they caused by new technological developments, political events or just the speed of change. The result of this is a constantly altering risk landscape that is becoming more and more unpredictable. Businesses of all sizes in every sector are affected by this and in order to achieve their goals, stay competitive, and create long-term value companies have to respond to these risks. To put it simply, without doing so they won’t be able to survive and thrive.
In order to become more resilient and to ensure that disruptions have as little negative impact as possible, companies need to make risk management an integral part of their business. Such an approach allows for better management of threats and the ability to seize opportunities. Whatever the size of the organisation, however, effective risk management comprises the same key essentials:
• Understand your external environment. It’s crucial that you keep up to date constantly with what is going on in your industry and any issues that might have an impact on whether you can achieve your company’s goals, for example, are you facing competition from a new source? Do you need to understand cyber risk better or the impact of new regulations? How is customer behaviour changing in your sector? And is your business model under threat from new technology?
• Consider your attitudes to risk. Are you actually being too risk averse? Do you have any biases around risk that you need to question? Also bear in mind that being more skilled, competent and knowledgeable puts you in the best possible position to take on and deal with risk, so a key element of good risk management is simply good management to make your business as strong and resilient as possible.
• Identify your key risks. What could stop you achieving your company’s goals in a signiﬁcant way? These might include operational risks such as loss of business premises, key staff or IT, but don’t forget the more intangible risks, like risks to reputation, for example, if you handle customer complaints badly. Remember that in an age of social media, bad news travels fast!
• Assess and evaluate the risks that you have identiﬁ ed. Large companies often develop scenario plans and do stress tests to help them understand the likelihood and impact of risks, especially when clusters of risks materialise at the same time.
• Decide how you are going to respond to the risks that you have identiﬁ ed. There are a number of possible options here, ranging from accepting the risk, avoiding it or managing it in some way, for example, with insurance or contingency plans.
• Monitor and keep improving. It’s crucial to keep your risk management framework under review. For example, learn from how well you dealt with a risk situation in practice, including ‘near misses’ and don’t be afraid to learn from other organisations’ experiences as well. For example, you might need to update your disaster recovery plans to reﬂect a reduced need for emergency ofﬁce accommodation when more employees can now work remotely.
It is clear that in today’s volatile, uncertain, complex and ambiguous world businesses will never be able to control everything that is related to risk. However, embedding good risk management practices into the normal course of business will help organisations build resilience to put them in the best possible position to achieve long-term success.