You should be leveraging the digitisation of your business to improve your management of risk. In the first of a three-part series, principal consultant at Risk Insight Consulting, Gareth Byatt, explains why…
The digital age is well and truly upon us. It pervades business and our personal lives, and provides us with many benefits. It also presents us with risks. Over three columns, I will explore what this means for risk teams, business executives and people who manage risk in their daily operations.
From the agriculture and banking sectors, to mining, manufacturing and retail, businesses are going digital. I believe the digitisation of business provides significant new opportunities to improve the management of risk. It allows us to augment the skills and techniques we currently use to help people make risk-informed decisions at the right time, using insightful data and artificial intelligence (AI). For example, if you work in mining or manufacturing, you can use data from operating equipment to manage the operational resilience risk of breakages and downtime, which can be very expensive. And if you work in financial trading, AI can provide you with algorithms to suggest optimal trades to make at specific times.
Risk management remains a qualitative management practice in many industries, supported to varying degrees by quantitative analysis. Generally, the more strategic the risk, the more management decision-making tends towards being qualitative, using techniques such as scenario planning and good business acumen. This is set to change. The need to qualitatively review risk will remain, but what we now see is a ‘tipping point’ at which the digitisation of business presents an opportunity to combine qualitative reviews with a data-driven approach to managing risk. Those who are pursuing this path are already seeing tangible benefits.
An example of the digitisation of business is the increasing adoption of the Internet of Things (IoT). The IoT is being introduced to all manner of industries and is having a positive impact on business performance. It involves machines, equipment and goods being connected to a digital platform that permits real-time data analysis to inform actions designed to optimise performance. And isn’t performance optimisation and the achievement of objectives what risk management is all about?
The risk community has a great opportunity to leverage digital platforms to enhance risk management, and optimise business outcomes. But what does this mean for the day-to-day operations of risk professionals? Here are four activities for risk teams to consider undertaking:
1. Getting involved in the strategic digital initiatives that are underway in the business. This means focussing on the details by joining steering committees, taking part in design workshops and providing implementation advice;
2. Putting together a plan for senior management and the board for ‘digital risk management’, which is linked to the business digitisation strategy;
3. Liaising with data analytics teams to assist them with risk management;
4. Retooling the team and changing how members spend their time. This involves planning how to leverage data for better risk-informed decision-making and devoting time to data analytics. In short, working out how to transition to this new world. (I will write about this in a future column.)
Don’t stand on the sidelines and wait for digitisation to arrive; it is happening already. Take the opportunity to create a step-change in how your business takes and manages risk to achieve peak performance.