Managing Emerging Risks
Thursday, January 21st, 2010Many organizations today have some form of method and system in place for the effective management of day - to - day risks, such as control assurance frameworks and effective risk and control assessment processes. These processes are employed to effectively manage their current risk and somewhat help to identify future risk within the organization. The application of other practices such as mitigation techniques and incident management further enhances this process. But what about those risks that are coming down the track in the long term?
Many organizations are currently considering how they can improve their capabilities for identifying their next big emerging risk. Many emerging risks or ‘global’ risks are systemic in nature and may often be beyond the capability of one single organization to contain. The World Economic Forum’s Global Risks Network, with organizations such as SwissRe and Zurich at the helm, recently published its 2010 Global Risk Report. Fiscal crises and unemployment, underinvestment in infrastructure and chronic disease are identified as the pivotal areas of risk over the next years in the report. The report also explores the interconnectedness of risks, and considers how the strategies for the mitigation of emerging risks might be structured.
The Global Risks Network recommends that organizations take a long-term approach to emerging risk identification, analysis, tracking and mitigation. The management of global or emerging risks can be supported using different functions within our Sword Operational Risk system. The use of these functions can be combined or they can be used independently to manage emerging risks depending on the organizations own internal approach. One approach is to assess the risk’s significance within the organization, how it is linked to other risks and its implications to the business through risk assessment in Swords Risk and Control Assessment module. Such a process should be separate to the current assessment framework.
Another more powerful method is the use of scenario analysis through the Sword Scenarios module. Scenario analysis can serve as an effective means for organizations to estimate their potential risk exposures and levels of preparedness should catastrophic risk events emerge. This method is currently being employed by relatively few organizations but provides an excellent format for exploring what the future might look like and the likely challenges to the business.
A third method is to routinely monitor emerging risks through effective use of leading indicators within Swords indicator module. Monitoring emerging risk indicators helps to develop the organizational agility to address unknowable risks when they arise. Lessons learned should be captured in the issue and action module for analysis in relation to leading indicators, to further improve risk resilience.
The three approaches can also be combined together to identify, manage and mitigate emerging risks more effectively in the long term.
Dan Wallace
