Expect the Unexpected: Effective Risk Governance in an Uncertain World

Back in the 18th Century, Benjamin Franklin wrote that ‘in this world nothing can be said to be certain, except death and taxes’. Since then, the world has become ever more uncertain. 21st Century businesses have had to endure a wide range of disruptive events, including global financial crises, pandemics, wars, social and economic turmoil and the effects of climate change, to name but a few.

All this uncertainty creates significant challenges for risk governance. Ensuring the continuity of business operations and meeting the sometimes conflicting requirements of stakeholders is much harder, not to mention maintaining an organisation as a going concern.

How then should organisations reinforce their risk governance to meet these challenges? What are the priorities for the 21st Century?

Plan to adapt

Effective contingency planning is essential. Organisations must discuss openly and honestly what could go wrong and why. They should then ensure that they have the necessary controls and resources to respond. In terms of resources maintaining a war chest of cash reserves is recommended, especially when finance is hard to obtain. Equally, it may be advisable to maintain small stockpiles of physical assets like personal protective equipment (PPE) or computers.

However, predictive planning is never perfect, so don’t try to prepare for every possible scenario; instead, plan to adapt by building as much flexibility as possible into your organisational processes. Maintaining cash reserves is one way to achieve this, as are flexible working practices and production operations.

Focus on your people

The most responsive and adaptive resource you have are your employees. They are the eyes and ears of the organisation and also the decision-makers. Ensure that every employee understands what they can and can’t do when faced with an uncertain situation, but don’t restrict their discretion too much. Often, ‘on the ground’ staff have more up-to-date information and are able to respond much more quickly than senior management. Ensure that your employees are fully competent and empowered to make decisions and work to keep their morale high, so they are motivated to act in the interests of the organisation and its stakeholders.

Communicate, communicate, communicate

Modern technology makes communication much easier, but it does not guarantee effectiveness. Ensure that communication is both frequent and two way, running down and up the organisational hierarchy. Remember that on the ground, staff may have vital information on the effects of a particular event. They may also have worked out how to mitigate these effects. Equally, ensure that clear and consistent messages from the top of the organisation are communicated to all employees so that they understand the organisation-wide consequences of an event and the recovery priorities.

Make sense of the situation and take action

The worse thing an organisation can do in an uncertain situation is nothing. Take back control through direct action. One key action is to gather information on an event to help understand its effects and the financial/operational consequences for the organisation. Another is to respond quickly to what this intelligence gathering reveals. Don’t wait in the hope that things will get better or delay making tough decisions to the last possible moment. The sooner you can act, the quicker you will learn from both your successes and failures.

Simon Ashby

Dr Simon Ashby is Professor of Financial Services at Vlerick Business School, Belgium. Simon has worked as an academic, a financial regulator and a senior operational risk manager in a number of UK financial insti tutions. He also provides training and consultancy services in risk management.

Simon is the author of The Good Governance Guide to Risk.

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