Risk management overload a top business risk in 2024, warns Control Risks

The never-ending spate of polycrisis and global tensions means that risk management overload has become one of the top five risks facing companies next year, according to Control Risks.

But the company said overload is not inevitable if risk managers reboot their operations and take advantage of their rising prominence.

The other leading risks in Control Risks’ new 2024 Risk Map are ‘the great realignment’, as geopolitical competition forces capital to take sides and localisation changes how companies do business. Next comes the risk of uncertainty paralysis as companies wait on the results of the US election and China’s economy to kick into gear again. The other big risks, according to Control Risks, are climate disruption multiplying other threats and a trust deficit as digital integrity frays.

Vita Spivak, the company’s global issues analyst, told Airmic’s Risk Forum this week that the sheer number and diversity of crisis events anticipated next year will test the resilience of risk management functions more than ever before.

“The coming year will likely see a high-water mark in crisis complexity and disruptiveness, continuing a trend that companies have faced for the past few years,” she said.

“The feedback loop between drivers of disruption and the disruption they cause will intensify. Expect to see economic pressure and extreme weather feeding into more disruptive elections, state fragility, conflict, mutating cyber, digital and physical risks, geopolitical realignment and mushrooming regulation,” she told delegates at the event in London.

Risk management functions therefore face overload, under pressure of rising expectations  from boards, partners, customers and even employees, she warned. All this while organisations are focused on reducing costs.

“So 2024 will need to be the year of the risk management reboot,” said Control Risks.

“The solution? A right-sizing of risk management for a digitalised, fragmented and fast-evolving world in which risks do not fit neat boxes. Companies that recognise that 2024 demands a holistic and dynamic approach to risk will be the best placed to thrive through complexity and change,” it said.

The company urges risk managers to revisit the basic of risk management, harness data, increase integration with other key departments and, crucially, take a multi-disciplinary approach, to avoid overload and keep their companies on the straight and narrow.

Spivak stressed that risk management needs to switch from forecasts to scenario planning, even considering low-probability events.

Her company advises risk management functions to harness data and technology to efficiently and effectively source intelligence. Data and technology should also be used to track the performance of risk management, and report upwards or onwards, it added.

“But any risk management re-boot must also have an analogue core – to revisit risk management fundamentals linked to a reassertion of company values and culture, to ownership, responsibility and accountability. Consistency and clarity on matters of methodology is essential,” said the risk analyst firm.

It believes that these building blocks of risk management were dislodged in many organisations by the demands of the pandemic and the various crises faced since.

Its Risk Map goes on to urge risk management and key resilience departments, such as crisis management, to boost integration if they want to be successful in this difficult operating environment. This includes partnering in war-gaming, scenario-forecasting, crisis management contingency planning.

“There is probably a need to switch from forecast to scenario planning. It is important to consider even low-probability but high-impact scenarios. The war in Ukraine is teaching us to consider even those scenario that have 10% or 20% probabilities,” said Spivak.

Control Risks said that, perhaps most critically, 2024 demands a multi-disciplinary approach to risk management. “In a world where single risks may have a multitude of sources and/or impacts, identifying, assessing and treating risk must be shared across functions in order to be successful,” it said.

Control Risk is clear that risk management overload is not inevitable if companies boost their efforts and respond effectively.

And with this risk comes great opportunity for managers, it continued. “There is greater consensus on the value of risk management than there has been for decades… Now is the time to make that count,” it said.