Risk management includes identifying, assessing, responding to, and monitoring threats to a company’s overall setting in the marketplace and its total earnings. Risks begin from a range of sources, including technology, natural disasters, internal systems, legal liabilities, company branding, compliance needs, and more. Assessing these risks is important to every company, as understanding the weak points in processes or systems helps businesses to make informed decisions about investments in near-term decision-making while also preparing for long-term positive outcomes. Identifying spheres of risk exposure and creating ways to reduce issues is a crucial exercise that places businesses well in making their risk management decisions and keeps unanticipated costs in check.
Today’s top challenges facing risk management range from COVID-19-related effects to managing cybersecurity threats, and the continued importance of developing mechanisms that help your business identify the risks they know about — and reveal the ones they don’t. In this article we will highlight the major challenges facing risk management today, how companies are making risk management decisions, how to discuss risk management concerns with senior management, and more.
What Are the Biggest Challenges in Risk Management Today?
Currently, the top challenges in risk management are ESG risks that include climate, social, and regulatory issues, ongoing concerns about the global supply chain, plus the ever-present fraud, tech, and systems risks. Here are the top challenges to look for:
ESG Risks
ESG risks include the environmental, social, and governance-related risks that may affect a company. There are a lot of components that fall into ESG, including climate change effects and mitigation, environmental management measures, employee working and safety conditions, a company’s anti-bribery and corruption procedures, and an organization’s overall compliance regarding industry-specific laws and regulations. When assessing risk in this space, it’s important to recall that every issue may also hold an element of opportunity. For instance, the IMF reported in 2021 that sustainability initiatives are a growth area in Asia.
Supply Chain Issues
COVID-19 disruption to the global supply chain continues to affect a range of industries. Risk management decisions need to factor in supply issues. It’s a good idea to understand if high-priority assets for a business have outside dependencies and to build backup plans. Unfortunately, supply chain risks are going to continue in future which challenges risk management.
Fraud Concerns
Supply chain gaps have raised fraud concerns for companies. The New York Times reported on how consumers can find quality KN95 masks due to the prevalence of counterfeits during the pandemic. With the outpouring of government assistance during the COVID-19 outbreak in the United States, there was a rise in loans and loan forgiveness. Few scams pose as government agencies offering aid. It’s recommended that companies conduct fraud risk assessments, and make risk management decisions for both external and internal fraud.
Cyber Risk
Cyber risk has always been a priority issue amongst the many challenges facing risk management. The pandemic has intensified problems, with a mostly remote workforce for many companies. This has increased risk due to less device control and raised points of potential exploitation resulting from at-home assets being used by employees. As Forbes reports, work-from-home employees are at a higher risk of hacking than those in offices. Home connections are less secure, and the rise of online tools for team collaboration and productivity often has limited login security settings.
Inadequate Processes
Risk management decisions need to go beyond a standard checklist. It’s important to review the basics, but the risk management process must also reveal the gaps and uncover information that teams are missing — working to determine what they don’t yet know. Make sure that your risk assessment takes into account steps to investigate for potential concerns which are unknown, enabling you to uncover every issue.
What Are Some Challenges in Making Risk Management Decisions?
The most frequent challenges facing risk management decisions are usually the result of erroneous modelling, underestimating issues, or struggling to communicate concerns. If managers mistake the probability or size of the losses — or get other key data wrong — the probability of error is high.
How Are Companies Responding to Risk Management Challenges?
Companies are responding to today’s challenges by leveraging teams to conduct enterprise risk management evaluations. Companies that are getting ahead of risk are using enterprise risk management to truly integrate risk management decisions into day-to-day business operations.
What Is the Best Way to Explain the Importance of Risk Management to Senior Executives?
Risk can be communicated effectively to senior leadership when the risk managers take the needed time to explain the issue in clear business terms — detailing what the full risk is and what the impact could be.
How Will Risk Management Evolve in the Future?
In the future, risk management will expand to become more a part of the day-to-day culture within companies. The challenges facing risk management and other areas of business due to the unexpected pitfalls of a global pandemic have shown companies across all industries how important it is to prepare for unexpected situations and to increase business processes as much as possible. MitKat’s operational risk monitoring dashboard – DataSurfr.ai – can prove to be crucial to have risk identification, assessment, mitigation, and remediation efforts in place.
