From small mom-and-pop shops on the corner to global conglomerates, risk is an ever-present companion in the workplace and in life. It’s in the decisions you make, the strategies you adopt, and the daily operations you oversee.
Most importantly, risk is unavoidable. But think of it this way: just like having a lifejacket aboard a boat, the precautions in place to foresee and navigate risks are just as crucial as knowing what to do if you fall overboard.
In other words, the true measure of an organization’s effectiveness isn't in its ability to avoid risk completely, but in its determination to quickly face it, get back up, learn, and adapt.
David vs. Goliath: which is the risk?
Take a look at powerhouse names like Apple and Netflix. These global juggernaut brands didn’t just sidestep risk – they barreled into it and used it to their advantage.
Apple ventured into uncharted waters with the first iPhone, entering a market dominated by established manufacturers and brands. While some might say the market for success was slim, it pushed forward with a unique approach to marketing its products and redefined smartphones and desktop technology. Netflix, taking the emerging concept of digital content consumption into stride as a pioneer, evolved from LoveFilm DVD rentals into streaming right into our living rooms.
In the wider B2B sphere, there's BlackBerry. Once the go-to for business communications handheld devices, they saw a decline in interest as touch-screen smartphones evolved. When its once-dominant market share slipped away, BlackBerry pivoted with the challenge. They ventured into cybersecurity – a move that transformed their trajectory. They are now a familiar name in the cybersecurity software space.
Key benefits of effective risk management
So, what can effective risk management mean, generally speaking?
- An enhanced field of vision – More perspective opens up more doors – Netflix, Apple and BlackBerry are good examples. By not just focusing on immediate achievements, instead anticipating hurdles and building up the resources you need to respond to them, your organization is equipped to gauge challenges and seek out solutions.
- Resilient operations – Picture your organization as a smoothly running machine. Effective risk management ensures you face fewer disruptions, making operations seamless and efficient.
- Stakeholder dependability – Trust is earned over time. Everyone recognizes that risks are a fact of life. By acknowledging your unique risks and planning for them, you assure stakeholders of your organization's resilience and long-term viability. Proactively discussing these risks fosters trust far better than an unexpected crisis announcement and rushed damage control.
- Active sustainability efforts – Whether making small strides or massive leaps towards a green future, it's undeniable that regulations are getting stricter, and customers globally are becoming more eco-conscious. Recognizing and addressing the environmental and regulatory risks positions you ahead in reducing your corporate footprint.
Third-party risk: the linchpin of risk management
Risk management isn't just about theory or preparation. It involves having a full view of your unique business risks and how they interact. Third parties are a major element of any approach around risk, as all risks will have threads across your operation – but third-party risks are largely invisible on a day-to-day basis.
Though the inner workings of your third-party suppliers aren’t accessible to you in the same way as your internal operations, your suppliers share your spotlight. Their actions reflect on your organization as a result. Regarding third-party risk, there are two major points to keep in mind:
Supply chain vigilance
Regularly reviewing and auditing suppliers for compliance with current legislation and ethical practices is a must for third-party risk management. For instance, imagine discovering that a key supplier was recently fined for non-compliance with new legislation. If they are willing to improve and take immediate steps to rectify the issue and take steps to limit the damage, an option to limit disruption might be to collaborate with them to ensure compliance with that legislation to the standards you (and the law) expect.
However, when ethical issues compound legal breaches and the risk of further reputational or financial damage, you need to look at the bigger picture. Is this the first time they have had such issues? Has their communication with you been immediate and clear on what they will do next? Has your data privacy been affected?
Depending on the severity of the issue and the context of what it means to their, and your, organization, cutting ties might be the best way forward to maintain your integrity and reduce extended risks. Ironclad continuity plans should be built into your risk management strategy regardless, whether your main risks lie with third-party suppliers or outside the business completely – as the world recently experienced with COVID-19.
Of course, a more proactive strategy that involves thorough screening and due diligence as part of a third-party risk management strategy will help you to avoid these dilemmas.
In a volatile market, heavily relying on a single revenue stream, vendor or key figure to drive growth can make or break an organization, from one department to the entire operation. Proactively identifying and venturing into new, complementary markets, identifying silos and taking steps to limit the impact of realized risk can serve as a buffer. For example, diversification can stabilize revenue flow, ensuring business continuity even when one segment faces challenges.
The same concept applies to supply chains, as well as subject matter experts and vendors of assets, software or resources your organization needs to survive. Putting all your eggs in one basket means being absolutely certain that the basket is 100% bulletproof 100% of the time. Who can guarantee that? If you can’t, if one line of revenue is disrupted, what plans are in place to keep the business afloat?
Prioritizing risks: what matters most?
Understanding and prioritizing risks is half the battle. The next step is taking action. Here's how to navigate this:
- Strategic alignment: Before deciding on a risk action, ensure it aligns with the organization's broader goals and ethos. Every action taken, even in risk management, reflects on your company's identity, reputation and brand.
- Diverse solutions: Sometimes, risks can be avoided; other times, they need to be accepted. There are various strategies at play – from transferring the risk (like insurances) to mitigating it (like backup plans). Understand the pros and cons of each, including what other factors might impact them.
- Review periodically: After action is taken, always circle back to see the results. Was the risk managed effectively? What could have been done better? Regular reviews ensure that the organization is always learning and improving.
A risk by any other name
Whether it's the tech titans like Apple or security pioneers like BlackBerry, there's a consistent narrative: embrace risk to chart new realms of innovation and growth and work out which risks are pitfalls vs. which are propellers.
Managing risk is really about building a comprehensive understanding of your surroundings, having the tools to monitor, measure, and manage, and then making informed choices that drive your business forward.fi
Learn About Risk Management Solutions
View original article at Risk & Compliance Matters
Stay tuned for part two of this blog: Risk Management 101: The Human Touch, coming soon!