We are midway through 2023, and as leaders we should reflect on what we have learned about risk management in the first half of this year, with a view to improving practices and identifying key priorities for not only Q3 an Q4, but also forecasting for 2024. The nature of today’s risks requires more from risk management initiatives. We must prioritise additional capabilities where necessary, and expand our risk management lenses, to ensure more holistic and effective management to meet the demands of evolving risks.
Most recently, a popular fast-food outlet here in Barbados, suffered considerable disruption in its operations over a 2 to 3 day period, spanning three of its locations. The factors contributing to the disruptions were related to occupational safety and health concerns, leading to a withdrawal of labour and nation-wide coverage in the press and on social media platforms, ultimately resulting in revenue losses and reputational risk to the brand.
This recent episode should have sent a clear message to companies operating in Barbados that there needs to be a complete 360° situational awareness and visibility into risks in 2023 and beyond. Companies operate in increasingly dynamic environments where even a small event can develop and influence the scale of the impact, far beyond initial assumptions. Detached and siloed approaches to risk management can neglect to fully encompass processes and systems that drive our operations, as well as the support functions that help to create healthy, motivated, and committed teams, like Human Resources, Business Continuity and Safety and Health. These siloed approaches can leave companies with fragmented perspectives, that fail to capture the entire picture of current and potential risk exposures, and likely impacts on strategy and objectives.
All events, regardless of size, can have a strong effect on businesses and the markets and economies in which they operate. Given the present uncertainties facing us at a local and global level, it is not surprising that some companies may struggle to identify and manage their risks. However, effective risk management is required to bring greater certainty into our planning and activities by establishing a risk management culture within our businesses at all levels. Risks should be considered during normal business activities and decision making. Therefore, inherent in effective risk management must be collaboration and engagement of stakeholders, in support of the company’s overall performance. Each of these has resulted in an increased recognition and appreciation of the absolute value of risk management.
Good decision making is based on a clear understanding of the context and underlying uncertainties in achieving objectives. We will face multiple risks, some with compounding or cascading effects. Developing and evaluating alternative scenarios reduces uncertainty in decision making and illuminates unknowns that can occur. Timeframes and the extent of impact on business operations determine the criticality of decision-making processes.
For example, to get its products to market safely and profitably, a manufacturing company needs to understand risks related to physical design, operations, safety and health, the environment, quality, reputation, applicable regulations, supply chain, and economics and the interactions between them. Integrating considerations of uncertainty into decision making can lead to better decisions and better outcomes. To integrate risk into decision making, we should understand:
- Who the individual decision makers are.
- Who is accountable for implementing the decisions?
- The risk-taking attitudes of the people concerned.
- The importance and relevance of the decision
- The implication of the decision for various parts of the business, and
- The available resources to implement the decision.
Successful risk management requires an integrated approach. The objectives should be comprehensive straight forward insight into resilience management, through identification, analysis, and monitoring of risks in the context of our operations and most importantly our people.
Benefits from implementing and integrating processes to manage risk across our businesses can include:
- A more efficient use and allocation of capital and other resources.
- The ability to recognise and capture opportunities and threats quickly, and to respond to them.
- A reduction in the likelihood and impact of loss.
- Clearer, better-informed decisions.
- Lower compliance/auditing costs.
- Cost savings from using risk information to streamline and improve processes.
- Better management of human and cultural aspects that affect performance, and
- A greater understanding of potential events and the ability to influence their outcomes.
Let us consider investing more into the capabilities to continuously monitor, capture, evaluate and plan for changes in our companies’ risk profiles from both internal and external sources. Implementing and enhancing risk management supports our objectives and creates and protects value for our businesses. Remember, if risk is the combination of opportunities, threats, and future uncertainty, then risk management is an essential activity for informed decision making across our companies. Implementing effective risk management supports quality and success, and potentially the improvements for the betterment of our society.