Identifying Risks

In the face of an uncertain and volatile future, companies must constantly assess whether their capacity to identify and analyze risks is aligned with their goals. In the wake of the financial crisis, most companies and economies are making efforts to improve their ability to identify and assess emerging risks. Nevertheless, this is a handicap that they can no longer afford in a business environment increasingly defined by global recession, major government policy shifts, volatile commodity prices, and unstable financial markets. In 2012, countries around the world are facing major political change – at a time when the world is already in the throes of great instability. Approximately 53% percent of the global population will witness the change in political leadership. More than anything else, 2012 will be a year of political events and change. Around 26 countries such as the US, China, France and Russia are facing changes in leadership and are headed to the polls. Adding to this, many nations are experiencing political instability, often triggered by a shaky economy and immense dissatisfaction among the population. Just look at Greece, Ireland, Spain, Portugal, Italy or Tunisia to name only a few.  

Emerging risks must be treated as trends or events that may create volatility in an organization’s business environment as well as in its strategic and operational performance. The characteristics of emerging risks will often demand significant strategic or operational changes to hedge or minimize their potential impact. Companies must explicitly identify their key value drivers in order to identify emerging risks and analyze their potential impact on the company as well as its extended enterprise of customers. Risk also offers opportunities to foster innovation for sustainable growth.

“Two little mice fell into a bucket of cream. The first mouse quickly gave up and drowned, but the second mouse, he struggled so hard that he eventually churned that cream into butter and he walked out.”

                                                  — Frank Abagnale Jr. in the movie “Catch Me If You Can”

Today’s fast changing world creates more uncertainty for organisations and makes it harder for them to understand where new risks are going to come from. Whatever words we use to define risks, it’s clear that the risk landscape facing companies is dynamic. Organisations responsible for managing risk can see that a new risk landscape is emerging. But it’s often difficult for them to define what’s behind the changes, or how they should respond to them. The first step towards making the right responses is to map out what’s different in today’s risk landscape and to determine how to adapt to these differences. The risks germinated by the crisis should be used as a springboard to accelerate structural shifts towards a stronger, fairer and cleaner economic future. Failing to do so might lead only to a temporary recovery as the macro-economic and structural roots of the current downturn would remain untouched. Conclusively, averting risks may keep one in comfort-zone for a while but does not guarantee the same for a longer duration. The best way is to face them – manage by controlling them and turning them into productive forces.