Risk management will be a defining skill for surviving and thriving in the 21st century. Organisations are facing unprecedented levels of uncertainty from a combination of internal and external influences. The effect of this uncertainty can threaten achievement of objectives and value of the organisation. It can, however, also create opportunities for those with skills in risk management and organisational and personal resilience.
The term ‘black swan’ refers to a low probability event with a big impact. ‘Black Swan’ events may become more frequent. The impact of recent natural disasters highlights how unpredictable the environment can be and the effect on the value chain for those who are not well prepared. Continuous improvement in risk management capacity is likely to create a competitive advantage.
Good risk management can generate value from continuous improvement in productivity, lower costs and improved quality. It’s been estimated in the US that most companies could increase their value by 3-4% through improved risk management practices and systems. The design of a resilient and adaptive organisational framework is the starting point for good risk management. The World Economic Forum collects data across countries on resilience. They ask respondents to indicate how they would assess their national government’s overall risk management effectiveness in terms of monitoring, preparing for, responding to and mitigating against major global risks.
What can we do to build risk management capacity?
- Design a risk management framework that can be integrated into existing management systems.
- Undertake risk assessment: identification, analysis and evaluation, leading to ISO 31000.
- Identify binding constraints to your risk management.
- Create a risk management road map for management and decision makers.
- Monitor and review risk management performance, policies and strategies.
- Create business continuity plan for building resilience at an organizational and personal level.
- Help create a risk aware culture and ownership of risk for improved resilience.
Our approach to Risk Management and Resilience Building
The essence of our approach is to create value out of risk by recognizing the opportunities that come with uncertainty while simultaneously creating resilience out of adversity.
This value is generated, in part, through:
- Reduced cost of capital that comes from effective risk management.
- Increased confidence for dealing with uncertainty.
- Greater awareness of the relationship between objectives and risk.
- Improved productivity.
- Improved control of activities that create risk.
- Improved personal and organizational resilience.
- Reduced insurance costs.
- Improved motivation of employees and management and less stress.
Risk management quality examples
Assessed the impact of climate change for risk management of food security and measurement of how prepared food industry leaders are for low probability, high impact events. A research project for the National Climate Change Adaptation Research Facility at Griffith University in Australia. Presented paper to the World Congress on Risk, Sydney 17-20 July 2012. Collected and analyzed data on risk management practices from more than 50 cases studies along the Australian food supply chain. Project reports at www.nccarf.edu.au/publications/food-security-risk-management-and-climate-change and also at www.food-security.com.au; also at LinkedIn: Food Security 2050.
Interesting links for risk management and resilience