Balancing opportunity and threats in a Covid world

As chair of the Institute of Risk Management (IRM), Stephen Sidebottom is well placed to reflect on how UK and European risk managers are continuing to battle against Covid-19. Having taken over as IRM chair this summer, he paints a positive picture of the role risk managers have played since the pandemic struck and gives advice on areas that need focus as we tentatively enter the recovery stage. Ben Norris (BN): As Europe slowly emerges from Covid-19 lockdowns what are the key risk/areas that risk managers should now be focussing on to help their organisations through this period? Stephen Sidebottom (SS): The pandemic has brought into sharp focus both the upsides and downsides of risk management across an enterprise – from staffing, technology and supply chain to fulfilment. There’s a lot of debate across Europe about returning to office-based work and opening up hospitality, construction and other sectors in a safe way. There’s also significant debate about travel – both the risks to travellers and the wider issue about the risk of spreading new variants. This means that most risk managers continue to have a very full plate. I think many organisations will experience significantly higher levels of people risk in the next few years, whether that’s shortages of skilled workers, the so called ‘great resignation’ as people opt out of their current jobs, burnout or exhaustion, mental wellbeing challenges, and the ongoing health crisis of Covid-related illnesses and other conditions that have not been treated because of pressure on European health systems. Of course, none of the existing risks businesses were managing went away in 2020 and 2021. These risks still need just as much attention, if not more. The increase in cybercrime, for example, has been notable, perhaps in part fuelled by remote working. It’s also important not to allow the magnitude of the current crisis to obscure the other major, and interconnected, risks we all face. We still need risk managers to keep focus on horizon risks such as climate change and the impact of economic and geopolitical volatility. Given all these challenges, I’d recommend focus above all on ensuring you have a good risk culture in your organisation enabled by highly skilled professional risk managers. This might prove to be the most worthwhile investment you can make. BN: Is financial risk – economy, demand, inflation etc – a big area of focus for risk managers? What can they do to help in this area and is it something they are generally involved in? SS: Most boards are heavily focused on the external context for their businesses and thinking about what this might mean for their planning. Most business plans start with an extrapolation from current financial results but given the disruption of the past 18 months, it’s necessary to think again about what the baseline for business performance will look like and how external uncertainty – such as geopolitical risk, inflation expectations, post-Covid recovery and the impact of Brexit – changes both risks and opportunities. Risk managers can help reframe this debate so that the focus is not only on the risks associated with delivering a business forecast and hitting financial targets, but also on how the market is changing in the long-term. These changing business boundaries are exactly where strategic risk managers can make a real difference by helping to understand and respond to the rapidly changing and uncertain external economic environment in a way that facilitates opportunity as well as mitigating downside. BN: Is supply chain risk a big problem currently? And what advice can you give to help risk managers tackle this issue? SS: Warren Buffett famously said “only when the tide goes out do you discover who’s been swimming naked”. Risks in businesses’ supply chains have been ruthlessly exposed by recent events. The challenges of supply chain resilience are having a global impact, but in the UK we are especially vulnerable. Britain’s economy is one of the most globalised in the world and businesses rely heavily on offshored low-cost supply chains. It’s then also been hit by the double whammy of Covid and Brexit. This is leading to supply chain failures. Stock levels are reported as being the lowest they have been since the 1980s, supermarkets and restaurants are unable to guarantee supplies of fresh foods, and we’re already hearing warnings about Christmas shortages. The underlying risks were always there in our supply chains – what we are seeing now is a lack of resilience when they are put under pressure. The shortage of HGV drivers, for example, is not a new issue, but it is massively exacerbated by the loss of EU workers and disruption at the border caused by both Covid-19 and new government red tape. Add that to the effect of years of wage stagnation and underinvestment in skills – both also features of the wider UK economy – and it’s hardly surprising that even the strongest logistics network starts to fail. Businesses are heavily focused on managing these risks and I suspect supply chain risk is high on many risk registers and an integrated part of the overall risk strategy. In addition, I think risk managers should focus on two other things to tackle the issue. Firstly, understand what weaknesses may exist in your people model. How are people working in your supply chain treated? How well are they paid? How much training do they get? What are their working conditions like? What’s your attrition level in critical roles and how effectively can you hire people with the skills you need? These questions underpin both productivity and staff availability. BN: Are risk managers being leaned on during this Covid-19 period and being listened to more than ever on strategic and/or operational risk? How do you think risk managers have fared during the pandemic? Are they stepping up to the plate, and what can they do to ensure they are being listened to and can deliver when in the spotlight? SS: During the last few months, I’ve heard about extraordinary efforts made by risk managers and risk management teams to anticipate and respond to the impact of the pandemic. This includes practical operational risk management measures, anticipating and getting ahead of possible Covid-related risks, using data to provide early insights, and providing real-time risk assessments as the pandemic has unfolded. There can’t be a board anywhere that doesn’t now take strategic and enterprise-wide risk management seriously, but businesses across Europe have different levels of risk maturity and some are better placed to manage these unfolding opportunities and threats. The challenge to risk managers is to step into this strategic space for the long term and – to the extent they haven’t already – to embrace a holistic, system-wide view of business risks. The IRM surveyed nearly 1,000 members of its global risk community on this question. We wanted to know how risk management functions were responding to the crisis, whether their plans were working, and how the profession would grow and adapt in response. We found that 32% of businesses had not considered pandemic risk – or anything similar – before it happened. Of those who had considered pandemic risk, 80% had management plans and mitigation strategies in place. I am convinced that organisations that had prepared and had war-gamed, or done action learning, will have coped best with the crisis and will have been able to react more quickly and more effectively. For risk managers, the job is increasingly about getting an organisation’s risk culture or, if you prefer, risk DNA, to a place where it improves an organisation’s capability to respond to unforeseen events and global uncertainty. This requires a sharp focus on strategic risk management, sustainability and resilience. None of these are new topics, but all now have a much deeper resonance. Rising to this challenge goes well beyond traditional risk management approaches, with a focus on risk registers and core processes. Great risk management is increasingly also about understanding horizon threats and identifying ways to build sustainable growth – whether that’s new markets, global opportunities, upgrading infrastructure or investing in new technology and automation.

Balancing opportunity and threats in a Covid world

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