It often feels like the world is becoming increasingly unpredictable. The proliferation of AI, economic volatility, a shifting regulatory landscape, and other factors have created new challenges that today’s businesses need to account for. For organizations across nearly every industry, this added uncertainty can make business leaders (not to mention corporate boards) a little nervous.
The truth, however, is that today’s business leaders are no strangers to risk — and savvy organizations are actively factoring it into their plans for the future. Because while today’s threat landscape may look a bit different, the underlying risks — and how to address them — have largely remained the same. Businesses are constantly adapting to new regulations and compliance frameworks, facing down new cybersecurity threats, and evolving to meet the needs and preferences of consumers. Simply put, it comes with the territory.
And, while the looming threat of new technologies, regulations and economic uneasiness may feel like a tsunami on the horizon, risk-aware organizations can easily position themselves to ride the wave.
Today’s Volatile Risk Landscape
Most businesses understand that risk is inevitable, and responsible organizations already tend to have strong risk management practices in place. Of course, preparing for what might be around the corner isn’t easy. For example, it’s hard to predict exactly how AI will impact certain risk areas, when new regulations might emerge, or what economic conditions might look like a year from now. But that’s why savvy organizations are constantly creating, testing and reworking resilience plans, business continuity plans, crisis management plans and incident response plans. A strong risk management program doesn’t mean you have a plan in place for every possible scenario. But it does mean ensuring your entire organization is equipped to make informed, risk-based decisions, even on its very worst day.
That said, while any business can benefit from a well-established, mature approach to risk management, the current velocity of change in the world necessitates an added degree of flexibility.
With conditions changing rapidly, it’s not always easy to tell if you’re preparing for the right scenarios. Economic uncertainty can lead to changing customer and commercial sentiments, supply chain volatility, hesitancy (or enthusiasm) regarding mergers and acquisitions, and other potentially disruptive developments. Even the most well-prepared businesses sometimes find that previously reliable scenarios don’t fit the current landscape, and when that happens, they need to be prepared to dust off their assumptions and reassess their risk models.
Re-Evaluating Your Assumptions
If you’re a risk leader at a modern business, it’s important to consider whether you are using the right stress factors, and whether they are weighted properly. When conducting exercises, are you taking the scenario to the point of failure to better understand where potential breaking points exist? Perhaps most importantly, is scenario planning a “check-the-box” exercise, or is your organization truly interested in understanding where it has the potential to suffer a mortal wound? Risk management isn’t about responding to specific developments but about understanding where your weaknesses lie and ensuring you can compensate for them when the unexpected happens.
Testing is critical. It’s one thing to have a policy on paper, and another to put it into practice. It’s not enough to stress test a balance sheet or simulate a cyberattack on a specific system. It’s about wargaming a fleshed-out scenario and understanding what levers need to be pulled to address it. Maybe that means sourcing products or materials from alternative suppliers. If so, can you count on those suppliers to be available at an acceptable price point? If critical systems are taken down in a cyberattack, do you have backups ready? Is there a process for activating them, and do you know who to contact? Again, risk management is about preventing surprises, and that means testing everything, top to bottom, so you know exactly what you can count on and when.
It’s also important to remember that “risk management” is not the same as “risk avoidance.” For example, any business could completely eliminate the risk of email phishing by cutting itself off from the internet, but that would have obvious drawbacks. Think of a medieval knight wearing a perfect set of armor with no weaknesses. Sure, he might be protected, but he’ll be effectively paralyzed. The same is true of businesses that take an overly cautious or conservative approach.
Managing risk is good, but don’t become so risk averse that it limits your agility and flexibility. You never want to be paralyzed in the face of change you want to be light on your feet and quick to adapt.
Many of today’s biggest “risks” illustrate the difference between risk management and risk avoidance, and AI is a prime example. In fact, AI is so ingrained in today’s technology that it’s hard to even call it an “emerging” technology anymore. While it’s true that AI comes with risks, avoiding the technology altogether is no longer an option.
Instead, businesses need to ensure they have the right processes in place to take advantage of the benefits while limiting the risks. By upleveling your risk management practices and reevaluating them on a continuous basis, you can make informed, risk-aware decisions that drive the institution forward.
You may not be able to predict the exact risks that will impact your business, but the right approach can make all the difference. When you see a tsunami of change on the horizon, don’t panic. With the right risk management practices in place, you can maintain the agility you need to stand tall and ride the wave.
