Animesh Deshpande, Management Consulting Analyst, Accenture, India
In today’s interconnected era, an adverse event in one part of the world can snowball into a global crisis. The Covid-19 pandemic caused worldwide economic and social devastation, and exposed the fragile nature of countless business models that were ill-equipped to handle this sudden disruption. At the same time, corporations with robust risk processes and strong risk culture navigated easily through this, demonstrating the effectiveness of mature Risk Management Systems (RMS). Success of such enterprises tells us the importance of risk management in building resilience while pursuing organizational growth. Many organizations are now reassessing their risk management systems, with emphasis on building risk literacy across the enterprise.
The globalization of risk
The call for diligent risk management as a crisis prevention tool is far from recent. Almost a decade back, the World Bank had emphasized its importance in preventing global calamities, and protecting the people, while pursuing avenues of opportunity. In its World Development Report 2014, titled ‘Risk and Opportunity: Managing Risk for Development, it underscored the role of risk management in saving lives, averting economic damages, and preventing developmental setbacks. Singular events like an outbreak in a village, the collapse of a single industry in one economy, or the melting glaciers on one continent, have the potential to grow in terms of impact as the consequences reverberate across the globe. In this new normal, we must prepare for all kinds of emerging uncertainties, including environmental, cyber, regulatory, economic, and social risks.
Consequently, organizations are shifting their focus towards building resilience, even as they explore new channels of growth. There is an increasing realization of the fact that a risk-aware structure can help not only in averting or managing risks, but also in unlocking new doors to business growth. Risk management includes defining an enterprise’s risk potential and determining which risks to pursue in order to realize new opportunities. More importantly, it fortifies a risk culture based on data and analysis while developing the organizational risk talent. It ensures agility of response when faced with uncertainties.
How can risk education help
The International Standard on managing risks (ISO 31000:2018) defines Risk Management as “coordinated activities to direct and control an organization with regard to risk”. It is important to note here that risks, defined as deviations from the expected, can be negative, positive, or both. Indeed, managing the effect of uncertainty on an organization’s business objectives can lead to losses as well as gains, depending upon the actions taken. However, this is a scientific process, involving the identification, evaluation, and prioritization of risks in pursuit of predetermined objectives.
Organization-wide risk management requires risk literacy at every level and not just finance or insurance. It helps business leaders to align business objectives and strategies with the organizational risk appetite to minimize risk exposure. At the managerial or executive levels, it ensures that day-to-day activities are carried out in accordance with organizational risk appetite, while staying vigilant about emerging deviations from expected events.
One must also stay abreast with the rapidly changing business environment, and relevant technologies and tools, especially in the face of increasing regulatory considerations. It requires formal training to communicate and align risk management principles in accordance with the organizational objectives. To achieve this, organizations are investing in risk education empowering employees with the much-needed skills to identify and manage enterprise-wide risks. Organizations have also started recruiting qualified ERM professionals with specialized skills to build an effective risk culture. This is potentially one of the most demanding careers of the future and a good opportunity for students who will enter the workforce in the future.
The Institute of Risk Management (IRM)’s globally recognized qualifications are designed to provide a sharp learning curve and a holistic approach towards enterprise risk management. These qualifications provide professionals with the opportunity of building their risk quotient while joining a global network of risk professionals, chief risk officers and business leaders. IRM offers a 5-level pathway to Certified Fellowship (CFIRM) with each successive level ensuring a globally recognized certification and professional designation after Level 2. These levels can be pursued along with graduation or a professional career depending upon the current skill level and experience.
Risk Management is not just about avoiding risky ventures. It also focuses on which risks to pursue in order to propel business growth. Armed with the right set of tools, procedures, knowledge and insights, corporations and individuals can identify variables that lead to a risk or an opportunity and manage them well. To create a risk-aware society, we must, therefore, invest in increasing the risk literacy. Professionals should be able to recognize an impending crisis and act swiftly to minimize its impact. Students can also try and understand risk concepts and showcase these skills while pursuing employment opportunities.