The definition of risk management has evolved over the years. While in previous years it would allude to identifying and attempting to avoid risks, businesses have now come to realise that an element of risk is inevitable and have previously misconceived it as something they could control. Focus is now shifting towards better managing its impact.
A prime example is the unprecedented impact of the COVID-19 pandemic, with the global economy expected to shrink by 3% in 2020. In the modern world, it’s now that much harder for businesses to know what is round the next corner. Recently, forecasting supply and demand has proved difficult with the lack of relevant historical data, and this has not only impacted risk management for many businesses but they now also need to contend with a new way of managing people. Many employees are currently still on government-initiated furlough and understandably are in fear of redundancy in the future due to the uncertain situation.
With a shift in focus, a good modern risk management strategy needs to take into account the mitigation of risk and looking at how and where it can be turned into opportunity, rather than avoiding it. Many of today’s businesses have strong capabilities to tolerate risk, although will struggle to move forward if they become too averse to it. When a risk comes to fruition, the greatest challenge is for businesses to get back on track and move forward, so how can a modern strategy help?
Before any risk management plan is implemented in an organization, businesses need to take into account the fact that key risk points can vary between different projects and processes and consider the current effectiveness of these.
Some of the most likely points of risk can include the following:
It’s vital to understand where the risk sits across and within your processes so that you can triage it. A high degree of flexibility and dynamism is now needed across business functions, especially in larger organisations, as those that can’t adapt to counter new entrants or market challenges will find themselves in future difficulty. During the COVID-19 crisis, many organisations have adapted to the risk and successfully switched focus towards operations such as PPE manufacturing innovation or increasing pharmaceutical manufacturing capacity to meet market demand, such as in the case of A&M EDM, where the business was able to 3D print visors and chin pieces. Others have looked to take advantage of longer-term strategic market opportunities.
Any good risk management plan should clearly focus on the core components of an organization, whether it’s improving engagement with customers or delivering the core strategic vision. To implement a plan effectively, organizations must evaluate their processes in detail and clearly understand their main risk points, including the people component, organizational elements, technology and external factors. Trialing potential scenarios and having a clear mitigation strategy allows businesses to assess how a possible risk could present itself in practice.
Breaking an effective risk management plan down into smaller and achievable tasks is an absolute must, and each of those tasks should be owned by an individual, with clear delivery deadlines in place that should be adhered to. A reasonable back up plan should also be in place, which should contain an element of pragmatism that allows organisations to react to potential events and adjust their approach. By following these key points, organisations will be best placed to cope with the business environment of the future.