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A wake-up call for better risk management?

07 June 2023 Myra Knoesen

Against a backdrop of war in Ukraine, record-high inflation levels, supply chain strains, and climate events, converging crises are reshaping the global business agenda.

With this FAnews spoke to Christopher Palm, Chief Risk Advisor at the Institute of Risk Management South Africa (IRMSA) about how leaders can navigate the ongoing uncertainty and build resilience amid unpredictable and unprecedented change.

Navigating the ongoing uncertainty

The world, according to Palm, has experienced unprecedented uncertainty in the recent past, mainly due to turmoil in the global economy, political landscape and the fall-out of the COVID-19 pandemic. 

“Several questions have been raised, regarding the value proposition of risk management, as seemingly well-run corporates have failed during this period, despite perceived good leadership, good governance, good risk management, compliance, reporting, and so forth. For IRMSA, the value proposition of risk management has become clear. It lies in addressing whether risk management, in isolation, is enough to support organisations in producing value for all stakeholders whilst remaining sustainable,” said Palm. 

“Generally, organisations (whether public, private, small, micro or medium-sized) may still have a siloed approach to setting strategy, managing risk, responding to disruptive events and integrated reporting. This applies both structurally, with different reporting lines, and in governance processes, where consideration of the three disciplines happens in a disparate manner and each function has its own mandate, frameworks, policies and procedures. And yet the Chief Executive Officer and the Executive team are still responsible for the mandate and performance of each discipline. Organisational leadership can, therefore, at times, unnecessarily destroy value by not executing strategy, risk and resilience in an integrated manner,” added Palm. 

By integrating the disciplines of strategy, risk and resilience, Palm says organisations create clarity of vision. “They have foresight of threats and opportunities. They build agility in a volatile, uncertain, complex and ambiguous (VUCA) business environment to create and sustain value and avoid value erosion.” 

Solutions for new and emerging risks

“In a VUCA business environment, organisational leadership is expected to create, grow and protect value for the company and its stakeholders. In response to this growing complexity, and in a world of accelerating change, emphasised by advancements in technology, global connectedness and growing social consciousness, leaders need to incorporate a holistic approach to decision-making to survive and thrive in a sustainable way,” said Palm. 

Too often, Palm says leadership concerns themselves with hindsight and insight, without applying foresight in a structured and integrated manner. “Risk and strategy are both future-looking processes and are strongly influenced by individual and collective organisational risk appetite and culture. These future-looking processes entail a complete assessment of the threats and opportunities that stem from the company’s resource and relationship dependencies, and the company’s resulting impacts on society and the environment over the short, medium and long term.” 

“Companies are not creative and innovative enough when it comes to applying foresight. Moving beyond just the risk register is what is required. Skills like scenario planning, systems thinking, and integrated thinking allow for a predictive element to risk management that still prevents threats from materialising, but also leveraging opportunities, thereby improving the agility, competitiveness and sustainability of the organisation,” continued Palm. 

The “expanded” value proposition

So, what happens when leadership has set a robust strategy and effectively applied risk management - and risks still materialise? What is the “expanded” value proposition, from a risk management perspective, for example, a global pandemic? 

“Firstly, it is critical that in decision making, the integration of strategy, risk, and resilience challenges leadership to concern themselves with continually testing their strategic direction and strategic decision making from a risk perspective, as risk is about threats and opportunities. Secondly, excellent decision making (sound and timeous) requires the integration of a strategy, risk and resilience as it means a more efficient organisation with improved agility - adaptiveness and ability to learn. The risk and strategy should also have oversight around performance against strategy implementation, or else the strategy is just a document and not implemented. The strategy, therefore, responds to the external and internal environment (risk appetite and strategic risks) to either change strategic direction or manage implementation (operational risks). Thirdly, it is also certain that no organisation can foresee everything or has the funds or human capability to manage every risk. The integration of a strategy, risk and resilience improves the longer-term viability and sustainability of the organisation. However, the ability of an organisation to be able to respond, recover and adapt towards resilience when high impact risks emerge or materialise is key. This is achieved through continuous learning and enhanced response capabilities, as well as risk-based strategy setting and execution,” emphasised Palm. 

A level of creativity and collaboration

According to Palm, there is no doubt that collaboration is key to effectively respond to the future, both for threats and opportunities. 

“As discussed earlier, quality decision-making requires leadership to break down the silos. This is done through collaboration, both internal to the organisation, as well as external. Internally, collaboration is required between disciplines, as well as between functional areas of the organisation, and external collaboration extends beyond the organisation’s boundaries into its business ecosystem. This includes its suppliers, partners, customers, regulatory bodies and other stakeholders, as well as the communities in which it operates. An organisation owes a duty of care to a wide range of stakeholders within and outside the organisation. An organisation should ensure that the needs, interests and expectations of stakeholders are taken into consideration,” said Palm. 

“Then there is ‘Integrated Thinking’. It refers to the awareness and management of The interconnectivity and interdependency between the company’s resources and relationships over the short, medium and long-term. Lastly, the adoption of an integrated approach and focusing on proactive resilience will be driven by the risk culture of the organisation. Risk culture drives organisational culture. The ability of leadership to lead in response to the threats and opportunities will be substantially more effective with a ‘collaborative mindset’ across the organisation,” continued Palm. 

Strategy, risk and resilience

To develop adequate risk response strategies, Palm concludes that the solution lies in the integration of strategy, risk and resilience, “as these three disciplines are all; future-looking, driven by uncertainty, have numerous touchpoints where similar or aligned activities are undertaken and similar skills are required to respond to uncertainty, and complete the iterative process of quality management (plan, do, check and act) with a key focus on continuous learning (building resilience) from effective monitoring and reporting. 

Writer’s Thoughts

As Palm said, as converging crises continue to reshape the global business agenda, it is important for organisations to integrate the disciplines of strategy, risk, and resilience, so that they have clarity of vision. Do you agree? If you have any questions please comment below, interact with us on Twitter at @fanews_online or email me - myra@fanews.co.za

 

 

 

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