Reimagine risk

Globally, wealth disparity has risen sharply over the last decades. Emerging technologies have led to new industry segments, and other segments are continuously being automated. This reinforces the wealth disparity trend, as automation tends to impact the workforce with the lowest education the most.

An aging population and increasing polarisation

Emerging technologies also raise trust issues. Furthermore, high income countries are facing an aging population, leading to pressure on healthcare and retirement support. The global geopolitical landscape has increasingly been characterised by polarisation. As companies operate more internationally, supply chains have become fragmented across borders.

On the one hand, this has lured countries into a race to the bottom for corporate taxes. On the other hand, after decades of global free trade, some governments have been turning to protectionism. Moreover, there has been a sharp decline in popular confidence in institutions. Finally, decades of industrialisation and economic growth are putting significant pressure on our climate and environment.

Changes bring about new types of risk

All these changes bring about new types of risk. Beyond the current health and economic uncertainty due to the current COVID-19 pandemic, we already need to brace ourselves for more challenges in the future. We all strive for a better tomorrow, yet the future is uncertain and capricious. One thing is certain: organisations need to start preparing today.

Transforming risk management

A key element of this preparation is transforming risk management. Traditionally, risk management tends to focus on meeting requirements from regulators and supervisors. But will this approach suffice to address the challenges of our uncertain, complex and ever-changing times?

Rethink the principles of risk management

As change comes at us faster, managing risk is becoming harder. In order to stay relevant in this increasingly volatile world, organisations need to rethink the fundamental principles of their risk management: how the risk organisation is governed, whom it serves, how it increases its attention on emerging risks, how it contributes to business decision making, how it enables strategy execution, and how it makes use of technology and data analytics to enable this change. 

In terms of tangible actions, this means renewing the risk taxonomy, transforming the workforce, aligning risk with strategy, restructuring risk management, outsourcing activities, rationalising the control framework and harnessing the power of data and analytics.

Mature is not the same as future proof

The current level of maturity of risk organisations varies across industries. The financial services sector tends to have the most mature risk functions, followed by other heavily regulated industries, such as pharmaceuticals, aviation and energy. However, mature is not the same as future proof: having a mature risk function today does not necessarily imply that risk management sufficiently addresses the most relevant risks of tomorrow’s world, nor that it operates in a cost-effective way. 

Let’s create the risk function of the future

Moreover, the current crisis has taught us that it is increasingly important that organisations in less heavily regulated industries build a sound risk function. The disruptions stemming from new technologies, climate change and geopolitical volatility will impact our society at large. Hence, all organisations, no matter the sector and current level of maturity, will benefit from rethinking the way they manage risk.

In the coming series of blogs I will address risk transformation in more detail. The message will be short but not always sweet. With this, I hope that we can start thinking and acting to create the risk function of the future.