RIMS Australia: Scenario planning essential for intangible risks

Scenario planning and modelling will become an essential tool for risk managers in mitigating intangible global risks, according to Federation of European Risk Management Association (FERMA) president Julia Graham.

Speaking at the RIMS Australia 2015 conference in Melbourne this week, Graham said “scenario planning was going to become a much more common tool that risk managers need to have in their toolkit” thanks to the increasing trend for intangible risks such as cyber, fraud and reputation to top global risk management surveys.

”The new normal is businesses are becoming more global, the pace of change is increasing, we’re more dependent than ever on technology, there’s greater connectivety and risks are more intangible. The balance of risk therefore on the boardroom table is changing,” Graham said.

“Not only are these risks hard to manage, they’re multi-dependent and this is a reflection of a fast and moving and more dynamic world that we’re living in.

“Most risk managers focus on risks that are controllable. It’s a natural thing to do – focus on the things in front of you which you have a bit more comfort in being able to do something about.”

Global risks, however, are much harder to control and quantify. But they are increasingly the focus of boards around the world.

“The rising tide of board responsibility says that the buck stops with them for managing all risks that might affect their organisations – and that includes global risks. So [boards are] unclear on what to do these global risks but they’re actually responsible for managing them.”

This is where effective risk management can help.

Graham said risk managers should not try to “intellectualise” the global risks, but focus on their potential impacts and outcomes.

“Don’t try necessarily to manage the risks you can’t do anything about – try to focus on some scenarios, for example, of what these risks might mean for your business.

“There’s quite an art to doing scenarios well and I certainly think that’s an area that risk managers can build up their skills on to help their board try and look over the horizon and look to the future,” she said.

But Graham warned against focusing on intangible risks at the expense of the tangible.

“You really need to work very hard with your boards to keep the tangible [risks] on the table because they haven’t gone – they’ve just been pushed slightly out of the way by things that are more likely to keep people awake at night than catastrophes of a physical kind.

The key is for boards to focus on crisis management.

“What we’re trying to say to the board is as the risks become intangible you should focus your eye a little bit less on insurance for some of these [risks] but always have your eye on crisis management.

“Don’t always think that a crisis is about a fire, a flood or a kidnap; it could be an issue that involves fraud, an issue that involves potential reputation harm – all sorts of things where you might want to invoke crisis management from different sorts of events which are much more like those global risks.”