Risk managers must embrace change or risk wasting higher budgets post-Covid-19

Risk management budgets are likely to increase following Covid-19, but investment in the same old frameworks will mean many companies remain inadequately prepared for the next unexpected event, according to two risk technology experts. Jim Wetekamp, chief executive officer of Riskonnect, a risk management software provider, told CRE that risk management budgets are set to rise following the shock of Covid-19. “We are seeing an increase in risk budgets relative to operational budgets. Many risk managers are being asked what the appropriate response [to the pandemic] is and what resources are required to meet the challenge,” he said. However, organisations should not be tempted to spend these budgets doing what they were doing pre-pandemic, said Mr Wetekamp. “It is not viable to revert back to ‘business as usual’ when it comes to risk management strategies – 2021 should not mean a return to 2019. Organisations need to re-evaluate the future of risk – the tools, skills and risk management frameworks they will need to ensure resiliency,” he said. Rather than increase investment in existing frameworks, companies should modernise risk management and move to continuous risk monitoring, advised Atul Vashistha, founder and chairman of Supply Wisdom, a New York-based supply chain risk management technology supplier. He said Covid-19 has highlighted certain failings in risk management frameworks. The main problems are that they typically react to risk and do not cover a wide enough range of threats, while supply change risk management does not take into account location, he said. “Recent years have seen an increase in the frequency and severity of events, such as storms, terrorist attacks and political unrest. But companies have not responded in terms of changes to risk management programmes. Covid-19 has shown risk management systems are lacking and that organisations do not understand risks to supply chains and cascade risks,” he said. Mr Wetekamp believes Covid-19 will accelerate a move by large corporations to create corporate risk management departments, on a par with functions like finance, HR or operations. More sophisticated companies are already operating with risk committees or councils, he said. Some of these operate as ‘virtual’ risk management departments, with their own budgets and strategies, added the expert. “Over time, these virtual functions could solidify into true risk management functions,” he said. While real change in risk behaviours happens on the ground, risk appetite, strategy and budgets are best set centrally, said Mr Wetekamp. “Risk and operations need to come together on budget setting, change management and compliance. Organisations that go down this path will be able to respond much faster than those that do not,” he added. Current risk frameworks form a good foundation for the future, but risk is still too often managed in silos. For example, enterprise risk management might fall under governance, cyber risk under IT, people risk under HR and insurable risk under finance. Mr Wetekamp believes organisations would be best to spend risk management budgets on data. He stressed the need for processes and systems to capture and integrate data, then automate change management and compliance. The pandemic has opened boards’ eyes to the amount of risk data buried within their organisations, as well as the need for integrated risk management frameworks and platforms to capture and analyse this data, he said. “Companies should think in terms of switching from defense to offense when it comes to risk management,” according to Mr Wetekamp. “Everyone has been hit simultaneously by a single event, so there is a universal understanding that we are in a new normal. The pandemic experience may not be a ‘once in a career’ experience and organisations need to be prepared for the next event and be able to respond,” he added. Boards are increasingly aware of the need to modernise risk management following Covid-19, according to Mr Vashistha. “The biggest change I see ahead is how companies make their risk management continuous. Companies in sectors like technology, pharma and financial services are rethinking risk management and supply chain risk, while coronavirus has accelerated the move from periodic monitoring to continuous,” he said. He added that the move to continuous risk management does not have to cost more than existing risk management budgets. Supply Wisdom, for example, is one of a number of companies offering risk management systems that can help collect and analyse risk data and automate risk management processes. “By using automation and artificial intelligence, we can do risk management at scale and efficiently, and provide real-time access to information on a wider range of risks. Automation and information availability make this possible today,” said Mr Vashistha. He expects most companies will move to continuous risk management during the next three years and roll out the concept to a wider range of risks.

Risk managers must embrace change or risk wasting higher budgets post-Covid-19

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Want to read this article?

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