Today, common challenges to effectively performing risk assessments are similar in nearly all organizations, but the strategies implemented to identify and prevent these challenges is unique to every organization. Sincere, thoughtful and authentic evaluation of risks facing an entire enterprise or a business segment enables appropriate identification of impending threats. Such a process of risk assessment works as an offensive discipline that helps to create a robust risk mitigation framework. Efficient implementation of a risk-adjusted mitigation strategy creates a competitive advantage that brings superior returns.
On the other hand, risk assessment governed by poor principles exposes an enterprise to potentially disastrous outcomes. It is naïve to calculate the direct financial loss as the sole impact of a visible adverse incident that occurred due to failure in risk assessment. Viewing the immediate financial loss as the only casualty reflects a larger approach gap on the part of the affected business. It demonstrates that the entity has failed to utilize a process that, in reality, represents opportunities.
A diligent risk assessment process represents opportunities of the following types:
While organizations everywhere recognize that a robust risk assessment methodology is essential to ensure and sustain prolonged profitable performance, the majority are perilously happy limiting their risk assessment responsibility to ticking check boxes.
On the other hand, while every failed story in the past decade invariably points towards the absence of meticulous risk management models within businesses, it is equally true there are certain challenges to efficient risk assessment. These challenges are common across industries, with variations in their intensity depending on business types, enterprise size and culture within an organization. These challenges include the following:
Risk assessment is viewed as a barrier to day-to-day business activities: Although enterprises recognize risk evaluation as a critical discipline, sadly, the acceptance is still largely academic. A large number of businesses abdicate or postpone risk assessment in favor of usual business tasks and view related practices as yielding limited or no value. This flawed approach originates from the organizations’ inability to create a solid business case for risk evaluation.
Organizations struggle with the process itself: Among enterprises ready to practice risk assessment, a woefully large number get tangled in the process itself, seldom arriving at a fruitful completion. And this is despite the concepts and principles of risk assessment not being intricate. Often times, this is the result of a hurried run to complete risk assessment for regulatory purposes. An approach of this nature not only defies regulatory requirements, inviting hefty penalties but also exposes the organization to vulnerabilities of varied nature.
Data interpretation to derive actionable insights is tougher than it’s made to look like: Information exists and is getting generated at an unprecedented pace and volume. While organizing and processing available large data volumes to foresee risks is tough, interpretation of data post-assessment could be a daunting task for organizations, including for large corporations.
Risk assessment data do not always perfectly reveal the existing reality: The above scenario is further intensified as the means used to accumulate the necessary information are often faulty. Organizations repeatedly use inappropriate tools such as questionnaires and surveys. An ignored problem with these traditional ways is that the answers are provided to please the assessors, which hide the real areas of vulnerability, affecting the very purpose of the process, making risk assessment faulty.
Implementation of risk evaluation outcomes is not prioritized: A realization of the flaws inherent in the process as discussed in the above four steps combined with lack of accountability leads to lackluster implementation. More often the risk findings are not acted upon at all.
Challenges abound, but so do remedies and opportunities. What requires is a well-intentioned change of perception and technological assistance. It’s time that enterprises begin to view risk assessment not as a hurdle but as a complementary discipline that creates and adds value in sustaining business performance in a risk-intensive world. Businesses should follow a practical and easy to understand risk assessment process and accomplish it repeatedly.
Creating a comfortable risk culture where stakeholders and employees participate in open heart discussion to find and reveal true risks goes a long way in securing an organization against ever-evolving threats. This step can be complemented by conducting informal in-person interviews. Create accountability by ensuring voluntary participation and diligently implement risk findings with a sure knowledge that risk assessment is the mainstay of an effective ERM program.
Ineffective risk assessment resulting in inept risk management strategy has accounted for some, if not all!, of the largest economic losses ever experienced in the corporate history. Frankly, enterprises that suffer are the ones that fail to create a solid business case for risk assessment due to their defensive strategy.
But there are businesses that adopt clear and effective approach without over-controlling risk. These enterprises turn challenges into opportunities, realize the value of bridging commitment and execution in risk management, accept the right quantity of the right type of risk to pursue their goals and stay profitable in a market-distinguishing manner.
Risk Management Studio has proven to increase the effectiveness of risk strategies on a global scale for small to large enterprises. Send your inquiries and questions to firstname.lastname@example.org.