Risk managers must expand horizons to combat geopolitical risk: Airmic

A new Airmic report concludes that risk managers must reconsider how they collaborate with internal audit to combat mounting geopolitical risk, and argues that typical profiles of risk and internal audit professionals should be reviewed to help organisations rise to the challenge. The report, co-authored by the Chartered Institute of Internal Auditors (CIIA), also finds that scenario planning and horizon scanning are key to managing geopolitical risk. Organisations must resist the temptation to be events-led, and remain agile when crises strike, it says. According to the Navigating geopolitical risk: Building resilience demands collaboration in a challenging world report, we stand at an “inflection point” in geopolitics. It argues that geopolitical uncertainty is here to stay and will contribute to a more risky and volatile business environment in the years ahead. It says risk managers and internal audit professionals therefore need to relook at how they collaborate as their organisations build resilience amid the “maelstrom” of geopolitical threats. “Geopolitical risk is becoming far higher in profile on the risk radar of most businesses and is a board agenda item – and one that demands a collaborative response from risk and internal audit professionals. Building resilience is imperative. Businesses need to be prepared to deal with significant disruption caused by geopolitical incidents,” says Julia Graham, CEO of UK risk management association Airmic. “Risk and internal audit professionals must be responsive to the pace and nature of change, and continuously consider adjustments in their activities to reflect the purpose, culture and risk appetite of the business. They must operate a feedback loop and have the courage to step up with informed and timely recommendations for adjusting their approach collectively, where there are signals indicating they should do so,” she adds. Sharing intelligence is key to collaboration between risk and audit function, advises the report, produced in partnership with cloud-based audit, risk and compliance management firm AuditBoard. According to Airmic and the CIIA, companies also need to review the typical skills they look for in risk and internal audit professionals, in order to help tackle geopolitical risk. They say professional education needs to balance soft and technical skills to equip members to “think the unthinkable on geopolitical scenarios and speak up”. “Risk and internal audit professionals share an inexperience in dealing with the current risk environment. They must master new technologies, understand business and technology dynamics, and partner the business and their other business peers to help synchronise business reactions with external realities,” says Julia Graham. The report stresses that risk managers shouldn’t be afraid to make themselves unpopular with senior management or the board. “The bigger risk is of senior management or the board turning around and saying ‘Why didn’t anyone see this coming?’ or ‘Where was risk management and internal audit – why didn’t they see this coming?’,” it adds. The report’s authors believe that risk and internal audit professionals must operate as strategic enablers by providing executive decision makers with information that is appropriate and timely. And they make it clear that geopolitical risk does not sit in a silo. “Geopolitics connects and exacerbates a wide range of business-critical risks including reputation, legal and regulatory, cyber security and even financial stability and liquidity,” says the report. It goes on to say that organisations need to be agile, and in a permanent state of readiness, to respond to the challenges thrown up by “once-in-a-generation” geopolitical events. Scenario planning and horizon scanning are key to preparing for geopolitical risk, the report says. “By making plans based on plausible potential events, organisations can be prepared for geopolitical disruption. Simulation exercises and practice are therefore vital in managing and mitigating geopolitical risk. Financial stress testing, as is common across financial services and publicly listed firms, can also play a key role,” it adds. Hoe-Yeong Loke, head of research at Airmic, says that “geopolitics is not a game of predicting future events”. “To build resilience in a challenging world, scenario planning and horizon scanning are key for organisations preparing for geopolitical risk,” says Loke. The report goes on to urge companies to take a long-term view of geopolitics. “Reliable countries may no longer be friendly ones further down the road,” it says. And it adds that geopolitics is not just about downside risk. “Organisations must have the agility to seize upside opportunity, to cushion the impact of geopolitical crises, and enhance upside growth potential where possible,” it concludes.

Risk managers must expand horizons to combat geopolitical risk: Airmic

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