Linkages between global trade, financial markets and supply chains have created a global eco-system with a strong dependency on stakeholders, customers, and vendors, within and outside the business environment. As a result, new risks emerge unexpectedly and at a higher frequency — which has far-reaching ramifications on a company’s reputation and even survival. PwC’s 2012 Global State of the Internal Audit Profession Survey showed that the complexity, unpredictability and diversity of risks are the top reasons why risk profiles are changing. Managing them is a huge challenge.
One of the key risks faced by organisations results from uncertainty in the economic and financial markets. For organisations dependent on global trade, such disruptions are far-reaching. Exchange rates in India were under severe pressure during the past year, which significantly impacted cost and revenue flows. This calls for proactive, flexible, and robust treasury management processes with adequate internal controls.
The growing use of social media, mobile devices, and cloud computing heightens the threat of IT security breaches, misuse of customer data, and reputation damage. With data breaches increasing by the day, organisations are concerned about privacy and security. Social media helps turn one-way communication into an interactive dialogue, as customers use mobile and Web-based technologies to share their experiences with a company or its products. Technological advancements require organisations to adapt quickly to changing business dynamics, to create adequate risk awareness, and to build a culture of responsible social media behaviour.
Forward-looking companies aim to shift their risk management focus from internal to external, from operational to strategic, and from bottom-up to top-down. Corporate leaders are installing new management structures and processes that integrate risk management across functions. This includes hiring professionals with the requisite skills to address enterprise-wide risk. Integrating risk management with the decision-making process enables organisations to respond, govern, and manage risks during periods of rapid change.
Where traditional risk management practices might fail, new-generation leaders adopt innovative techniques such as scenario analysis, predictive indicators, and reverse stress-testing to challenge conventional thinking, which better prepares them to deal with unexpected events.
To prepare for the new global risk landscape, companies should consider the following key questions:
Is your Board focusing on the right strategic risks?
Have you encouraged a risk-aware culture?
Is risk management integrated across departments and functions?
Have you expanded your repertoire of risk forecasting techniques to include innovative tools geared for the modern-day challenges of complexity, uncertainty and volatility?
The above questions would help organisations introspect and benchmark their current practices. Given that the only predictable aspect about risk is that it is unpredictable, the challenge for companies is to build readiness — for anything.
Sanjay Dhawan is Executive Director, Risk Advisory Services, PwC India