From trade conflicts to climate change to uneven economic growth, 2019 has already revealed a great deal of uncertainty and flux in the world.
For business leaders, this unpredictability means having a strong risk management strategy is more important than ever as they look to prepare for 2020 and beyond.
In a recent study by North Carolina State University and the American Institute of CPAs, over half of all respondents said the “volume and complexity of risks are increasing extensively” and name risks associated with talent, innovation, economic trends, and brand reputation as their biggest concerns. Another startling finding is that while over 80% of large organizations have dedicated committees for risk management, less than 20% of these organizations think their risk management processes provide a significant strategic advantage.
Given these concerns and trends, what’s the best way to manage the myriad risks in today’s uncertain times?
Start by assessing all risks, identifying those that are most influential for your business, and building out plans to address them proactively.
From the United States to Brazil to the United Kingdom, the uncertain and variable international political climate is trending toward nationalist policies with unilateral decision-making. For businesses, this trend means agility across the supply chain is more crucial than ever. To mitigate negative effects in this category, develop a network of suppliers both internationally and domestically to ensure flexibility when needed.
Technology risks range from cyberattacks and data breaches to fast-changing innovations that can threaten the very core of jobs and businesses, including artificial intelligence (AI) and automation. Clearly, it’s important to invest in appropriate security and defense measures, but it’s equally important to continually emphasize technological innovation within your own organization to stay ahead of the curve and enhance your competitive advantage.
Brand Reputation Risks
In this era of interconnectivity, a simple social media post or verified quote has the potential to drastically impact a business’ reputation. Businesses are being held accountable for everything they do, so reputation management should be an integral element of your business strategy.
Another aspect of reputation is the supply chain itself. Many companies have been exposed for doing business with less-than-reputable third-and fourth-party suppliers involved with human trafficking or underpaid labor. It can be extremely damaging to your business to be associated with such organizations. Thankfully, several technology solutions today help perform due diligence on a continuous basis in this area to avoid such catastrophes.
Natural and Environmental Risks
As the average temperature across the world continues to rise and weather events become more extreme and unpredictable, natural disasters and environmental risks pose a significant problem for businesses and their supply chains. Hurricanes, floods, typhoons, tsunamis, and other disasters can wipe out entire communities, impacting resources, businesses, and more.
Economic and Financial Risks
Companies always face financial risk; commodity prices may rise, inflation or interest rates can unexpectedly skyrocket, products may not sell as well as anticipated, or a partner may unexpectedly go out of business and refuse to pay credit due. Developing mitigation strategies such as increasing emergency funds can defuse a setback should any of these risks come to fruition.
Employees can simultaneously be a company’s greatest asset and greatest risk. From retaining and motivating talent to protecting proprietary intelligence, this category can be one of the most difficult to anticipate and proactively manage.
Fortunately, there are some proven ways to mitigate these risks. First, ensure the business implements and maintains knowledge-capturing practices. Second, establish a culture of trust and inclusion while providing training for all managers on effective, emotionally intelligent strategies to motivate and manage employees in an effort to retain high performers. Third, for employees in high-risk roles such as manufacturing or physical labor, institute detailed training to reduce the risk of error and increase safety.
Preparing to manage risks for 2020 and beyond can seem daunting, but breaking down risks into categories, likelihood, and potential business impact can help prioritize those that you must focus on first. It’s not “if” but “when” a risk will evolve into a serious issue; the price of being caught unprepared is too high to pay.
The better you prepare your business and supply chain to deal with these issues now, the better you’ll be positioned to outlast and outsmart your competition.