One of the essential concepts in risk management is risk velocity, or the time between exposure to a risk and its impact on an organization. Technological advancement has accelerated the speed of business, which also means risks may affect and spread within a business quicker. This is why technology is needed to help managers keep up with risks.
“Risk velocity is how long it takes for risk to impact an organization or the time it takes from occurrence to impact,” said David Wald, co-founder and CEO of risk management firm Aclaimant. “For example, take the timely idea of the spread of COVID-19. Risk managers must account for the velocity of the virus passing from person to person and how long this takes to impact the overall business.”
Risk velocity is not uniform across risks and organizations – some risks move faster than others and some organizations are more vulnerable than others.
“In essential industries, the velocity is greater than in non-essential industries since the threat of contracting and spreading [COVID-19] is higher, and therefore has a greater threat to the overall business,” Wald told Corporate Risk and Insurance.
Due to the differences in risk velocity, risk managers may end up committing mistakes, such as underestimating a risk, leading to lack of preparation. On the other hand, overcommitting to one area could lead to a waste of resources or vulnerability to another risk.
“There are a handful of mistakes risk managers make when addressing overall business risk and risk velocity,” Wald said. “Some examples include reporting claims in legacy ways such as paper or phone, or relying on spreadsheets for incident and claim-management processes. Advancing the scope and precision of incident and risk management processes requires an investment of time, technology, and people to create a more consistent, technology- and data-driven approach to risk management.”
Risk managers are often hesitant to make these investments. However, Wald said that risk managers end up realizing that improving on technology allows them to better align their prevention, mitigation, and response with the data in their system, as well as enable them to predict risk velocity more accurately.
“Other advantages include greater accountability, added oversight and analytics, and additional opportunity to automate manual steps and processes so risk managers don’t waste any time keeping their employees safe,” he said. “Digitizing risk management systems allows risk managers to make faster and smarter decisions and create a safety-driven culture. Speed and improved response time is the best way to address risk velocity.”
One of the most popular phrases in business today is “real-time”. Technology has resulted in faster processing times and instant results, and these have become the main selling points of many products and services. However, this also means that risks move faster and risk managers can’t keep up.
“Technology is the best solution to the problem at hand for risk managers managing risk velocity,” Wald said. “Using technology to streamline risk assessments is critical, because annual, quarterly, and even monthly risk assessments do not cut it anymore to keep pace in the world of ever-changing risk. As businesses navigate the new risk landscape, the shift to real-time, technology-driven processes will effectively keep companies better protected from claims and help keep employees safe and healthy.”
Aside from risk assessments, Wald believes that risk managers must cultivate a risk-oriented and safety-driven culture within their organizations.
“Through consistent messaging, sincerity, and tempering the rhetoric, businesses put safety back in the hands of their employees,” he said. “As a result, all members of the organization feel empowered to report and effectively act upon unsafe work conditions. This is only attainable by arming business leaders and employees with the right technology to make this possible.”
With the world recovering from the pandemic, what should risk managers expect?
“The only thing certain is change,” Wald said. “The best strategy for risk managers is to make investments in technology and people now, so they can remain prepared and flexible should a tough situation arise in the near future. The leading risk managers invest in their people, processes, and systems to cut down on risk velocity and react to anything in the face of uncertainty. Establishing a digital infrastructure for risk management allows teams to respond more swiftly and weather any storm that comes in 2021 and beyond. Risk management requires planning, resilience, and a systemized, digital process to help companies prepare for anything.”