Take a wider view of risk and gain value from risk innovation, says academic

Companies need to take a wider view of risk and look beyond threats traditionally on their risk register, according to Professor Daniel Ralph, academic director for the Cambridge Centre for Risk Studies. He highlighted risks such as reputation/brand, macroeconomic and trade factors, and geopolitical risks, as areas to work on. Professor Ralph was speaking at the Institute of Risk Management’s (IRMs) Risk Leaders 2018 conference, where he launched a report and survey from the Centre for Risk Studies at Cambridge Judge Business School and the IRM, entitled Risk Management Perspectives of Global Corporations. The report is focused on publicly-listed global organisations, and includes a ranking of the top ten risks in the next 12 months, according to respondents to the survey: Financials, revenues, profit, share price Operational performance Regulatory standards and reporting Reputation/brand Security of enterprise, including cybersecurity Business continuity and crisis management Macroeconomic and trade factors Health and safety Geopolitical risks Human capital Professor Ralph noted that short-term concerns during the next 12 months include operational performance, reputation/brand, and health and safety. Long-term concerns over the next ten years include geopolitics, human capital, sustainability, asset devaluation, and gender and diversity. The latter was ranked at the bottom of risks by respondents, but Professor Ralph said gender and diversity is a material risk applicable to all companies across sectors and worthy of being highlighted. Gender and diversity risk encompasses equality in income and career progression opportunities, creating a harassment-free workplace and safeguarding vulnerable employees. Survey respondents also ranked the top ten most important risk mitigation strategies that their companies are currently planning. In other words, said Professsor Ralph, where companies are actually spending money. He noted that mitigation strategies generally relate to the workforce rather than purchasing risk transfer instruments through capital or insurance markets. The top mitigation strategies include increased training around the company’s critical operations, balancing of staff, adjusting product offerings, strengthening risk culture, and an emphasis on health and safety. Others include changing geographical footprint of operations, divesting business units and modifying supply chains. Professor Ralph explained that the report compares budget priorities with risk profiles. It finds that there are certain areas not seen as a budget priority, even though the risk has been identified as important. These include reputation/brand, macro-economic and trade factors, and geopolitical risks. “There are challenges here, but not looking at these risks and taking the wider view is the biggest mistake,” the professor warned. The report also reveals that there is little overlap between the activities of enterprise risk management teams and those involved in insurance purchasing. It suggests there is considerable organisational distance between the two departments. “If you are an enterprise risk manager that doesn’t really understand how much risk is being laid off through insurance, then you don’t know if you have got that risk management portfolio properly managed,” said Professor Ralph. “That is normal in organisations. An inability to take a corporate-wide view where all risks and risk strategies and mitigations are actually on the table at the same time,” he added. He also stressed that companies need to regularly update their risk registers. “What we have found is that the top risks of a company move over time, so you need a rigorous process. Otherwise you end up with what we call ‘threat du jour’. You wake up one morning, hear about a data breach, and run in to work and say: ‘How do we handle a data breach?’ Well that should have been on your risk register for a long time. But the question is: when did it reach the top ten? So what is the process by which you manage this, and how do you avoid forgetting about the things that we’ve already had? Risk management processes need to remain wide, and you need to have a consistent process by which you approach all risks in order to make these judgements about what goes in and out of your top risks,” he told the conference. The survey suggests that enterprise risk managers are almost never involved in strategy, which Professor Ralph found surprising: “If there is such a thing as enterprise risk, should that not connect with strategy? We have found that there is rarely a mandate for enterprise risk managers to be involved in strategy. Instead, it is always fed up to someone else who is connected to the c-suite. And that sort of blinkering is not very healthy,” he said.

Take a wider view of risk and gain value from risk innovation, says academic

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