Risk management

6 posts

Navigating The 2024 Maze: A Guide For Small & Mid-Size Growth Companies

The past 18 months have painted a picture of economic ambiguity, with predictions ranging from smooth landings to potential recessions. Geopolitical tensions add further complexity, making future outcomes elusive. While perfect foresight remains out of reach, proactive risk management can equip mid-size growth companies to navigate these uncertainties and achieve resilient growth.

Challenges And Opportunities In A Tightening Credit Landscape

Regional banks, traditionally a financing mainstay for mid-size companies, are facing constraints, leading to tighter credit and higher borrowing costs. This necessitates exploring alternative financing solutions like private credit, even though they may differ from traditional bank loans in terms of structure and cost. Equity financing, while dilutive, might become a last resort. Asset-backed lending offers possibilities for asset-intensive companies, but collateral risks require careful consideration.

Top-Line Growth In A High-Interest World

Interest rate increases, high interest rate concept

As interest rates rise, companies must prioritize debt reduction and focus on value creation for both customers and shareholders. A comprehensive understanding of the value chain within each business unit is crucial, enabling informed capital allocation and ROI maximization. Operational efficiencies alone won't suffice. A C-suite equipped to understand and leverage the "value equation" is essential for driving growth through strategic investments, sales, and capital deployment.

Supply Chain Resilience In A Geopolitically Charged World

Woman in warehouse thinks about supply chain management

The current geopolitical climate poses challenges, but proactive mitigation strategies can lessen their impact. While predicting specific outcomes remains impossible, companies can identify and address supply chain vulnerabilities through comprehensive assessments and diversification strategies. This includes diversifying sourcing locations, suppliers, and production facilities. Additionally, contingency planning, buffer stocks, and contractual flexibility offer further safeguards in this complex global landscape.

Technology Innovation In A Capital-Constrained Environment

IT operations, information technology concept

âJustifying IT investments in a cost-sensitive environment demands clear demonstrations of cost savings and business value. For mid-size companies, this challenge becomes even more crucial. Trade-offs between IT security, infrastructure upgrades, and other needs are likely to arise. Identifying and prioritizing critical IT needs that directly support growth is essential. Continuous tracking and communication of the value delivered by IT investments are key to securing future funding.

Building A Thriving Culture In A Hybrid Workforce

Woman working remotely for a hybrid company attends a virtual meeting

The post-pandemic era has redefined the traditional office environment, presenting challenges for company culture and talent acquisition/retention. Creating or maintaining a strong culture while embracing hybrid work arrangements is paramount. Aligning values and fostering engagement when staff are physically dispersed requires open communication and hard conversations about roles, compensation, and expectations. While small and mid-size companies can operate remotely, sustained growth often necessitates fostering a strong in-person element as well.

Adapting To A New Interest Rate Regime

Financial, accounting, stock market, graphs, interest rates concept

As the U.S. economy recalibrates to a 3.5% to 4% interest rate environment, mid-size growth companies reliant on regional bank financing must adapt. Exploring alternative financing solutions, stabilizing supply chains, building a strong culture, retaining talent, and driving innovation are crucial for navigating this new reality and achieving sustainable growth.

Below are examples of consulting interventions to address these challenges:

Scenario Planning: Facilitate scenario planning exercises to help clients anticipate and prepare for diverse economic outcomes.
Financial Modeling: Develop robust financial models that account for varying interest rate environments and financing constraints.
Operational Efficiency Assessments: Identify and implement operational improvements to enhance cash flow and reduce reliance on external financing.
Supply Chain Mapping & Risk Management: Conduct comprehensive supply chain assessments and develop mitigation strategies for potential disruptions.
Talent Acquisition & Retention Strategies: Design and implement talent acquisition and retention programs tailored to the hybrid work environment.
IT Investment Optimization: Guide clients in prioritizing and justifying IT investments that deliver demonstrable value and support growth objectives.

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Navigating The 2024 Maze: A Guide For …

Risk Resilience: Building A Future With Confidence

In today's ever-evolving business landscape, risk management has taken center stage. The ability to navigate uncertainties and mitigate potential adversities is not just good practice; it's the essence of building a future with unwavering confidence.

This article will delve into the intricate world of risk resilience, exploring key facets, including defining risk, identifying crucial risks, establishing risk tolerance, documenting a company's risk appetite, communicating effectively, and implementing a dynamic risk management strategy.

Defining Risk

A âriskâ is a potential event or circumstance that could lead to adverse consequences, such as harm, loss, damage, or a negative impact on an individual, organization, project, or system. To build resilience, one must first grasp the concept of risk in all its complexity.

Identifying Key Risks And Risk Tolerance

Risk resilience begins with identifying the lurking dragons in your business landscape. It requires meticulously examining internal and external factors that threaten your organization's stability. However, merely identifying risks is not enough; you must also define your risk tolerance. How much uncertainty can your organization stomach on its path to success? Defining this tolerance level sets the stage for informed decision-making in risk management.

Documenting A Company's Risk Appetite

Your risk appetite isn't just a concept; it's a guiding principle. Proving it is akin to putting your organization's risk compass in writing. This clarity aids in fostering a risk-conscious culture throughout the company, aligning all stakeholders with the company's risk-taking philosophy.

Communicating Risk To Stakeholders

Man jumps/leaps across a cliff, risk concept

Transparency isn't a buzzword; it's the cornerstone of effective risk management. It would be best to share your organization's risk exposure, mitigation strategies, and potential consequences of risks to all stakeholders. Whether it's shareholders, clients, suppliers, or regulators, transparency builds trust and enables informed decision-making.

Implementing A Risk Management Strategy

Crafting a risk management strategy is akin to architecting a fortress against uncertainty. This strategy should encompass proactive risk mitigation measures, contingency plans, and an ongoing evaluation process. It's not static; it should adapt and evolve as risks and the business environment change.

Taking Action, Monitoring, And Testing

Your risk management narrative isn't a one-time epic; it's an ongoing saga. Taking action, monitoring, and testing your risk strategy is the sequel that keeps the story alive. Vigilance, adaptability, and agility are your allies in this journey. Be prepared to pivot when necessary, and always be ready to rewrite the next chapter in your risk resilience story.

In conclusion, risk resilience is not merely about surviving adversity; it's about thriving amidst uncertainty. It's a craft that demands a profound understanding of risk, apparent risk tolerance, transparent communication, and an ever-evolving risk management strategy. Your organization's future should not be a gamble but a confident stride into the unknown. You craft a story of resilience by taking deliberate actions, continuously monitoring, and rigorously testing your risk strategy. In this story, challenges are not threats but opportunities for growth and success. Risk is the catalyst of progress in business, and when managed astutely, it becomes your competitive advantage.

Assess Your Risk Landscape: Take a closer look at your organization's risk landscape. Identify the key risks that could impact your business and prioritize them based on potential impact and likelihood.

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Risk Resilience: Building A Future With Confidence

Most organizations understand the importance of having a comprehensive risk management program for their operations, processes, and systems. They obviously need to manage their costs to prevent financial losses, but there is much more, such as protecting the assets (including in the event of a business disruption) while complying with legal and regulatory mandates. If they donât, they could harm their brand image, customer trust, or stakeholder confidence. When organizations proactively identify, assess, and mitigate risks, they can enhance their resilience, sustainability, and long-term success.

Most organizations canât do it all by themselves and hire external parties (such as vendors, suppliers, or service providers) to support them with specific products/services. Any external party that plays a significant role in the organizationâs environment is considered to be a third-party vendor. Each of these third-party vendors will have risks. Since they should have their own risk management program, youâre not responsible for any of their associated risks, right? Wrong! According to the Federal Reserve, âThe use of service providers does not relieve a company of the responsibility to ensure that outsourced activities are conducted in a safe and sound manner and in compliance with applicable law and regulations.â

Types Of Third-Party Risk

Each of these third-party vendors has risks that may adversely impact your organizationâs operations, reputation, and security. So why arenât more organizations focused on third-party risk as much as they should be? For some, itâs because they arenât aware or donât fully understand the potential risks while others âtrustâ their third-party vendors. Either reason isnât going to be acceptable if something bad happens and it affects your organization.

Third-party risk specifically refers to the potential risks and vulnerabilities that arise from hiring a third-party vendor. Some of the top risks that you should be aware of are:

Cybersecurity risks - information security incidents and data breaches including ransomware
Compliance and regulatory risks - non-compliance with various legal or regulatory regulations
Operational risks - business disruptions in the event the third-party vendor is unable to deliver their products/services (e.g., if they have a material shortage) which could lead to operational inefficiencies
Reputational risks â unethical practices, labor abuses, etc. that a third-party vendor does which may damage its reputation
Financial risks - financial losses including penalties, litigation costs, or loss of customers

Mitigating Third-Party Risk

If something bad happens to your third-party vendor, you want to be as prepared as possible. Since each third-party vendor is different, how can you best mitigate these risks? Proactively implement a robust third-party risk management (TPRM) framework. Comprehensive TPRM minimizes potential risks introduced to your organization by third-party vendors who want to work with you. Some considerations are:

1. Start by doing your due diligence and completing a comprehensive analysis before signing any contract. Review third-party experience, licenses, pending legal issues, etc. The depth and formality of the due diligence will depend on the products/services the third-party will supply. Some contract items are costs, performance metrics, right to audit, data ownership, and termination rights.

NOTE: For your existing third-party vendors (already signed contract), continue with the other considerations. Consider item number one when the current contract comes up for renewal.

2. Risks can be related to compliance, operation, and reputation, to name a few. Review contractual agreements, risk assessments, compliance/regulatory requirements, business continuity/disaster recovery, etc. Do an assessment of the risks analyzing the impact and likelihood that they could occur.

3. Consider having an exit strategy detailing exit criteria and procedures to ensure data and assets are securely transferred or disposed of (just in case).

4. Perform ongoing monitoring including evaluating their financial condition and reviewing their internal and information security controls (e.g., obtaining their SOC reports).

5. Continuously evaluate and update the TPRM based on business operational changes, regulatory changes, and emerging risks.

The organizationâs (internal) risk management program is critical. Because the third-party vendors have a significant role in the organizationâs environment, the (external) TPRM is important too. Organizations need to address both sets of risks to effectively manage their overall risk landscape.

For more information on third-party risk, follow me on LinkedIn!

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Risk Management Is Critical. Donât Forget Your …

4 Ways Technology Can Help Manage Your Business Risks And How To Leverage This Opportunity

At one time, I was part of a working committee that reviewed a risk event that resulted in a material financial loss and regulatory sanction to an organization. The company got sanctioned for non-compliance with the Know Your Client (KYC) requirement caused by a gap in the manual risk management procedures. This event would probably have been mitigated if the KYC checks and controls process were automated.

For example:

Have you thought of how an application can automatically identify KYC risks by navigating multiple systems to review client information and identify inconsistencies? And how this process can save your organization from a loss of funds and prevent regulatory sanction?
Can you imagine how much time and money will be saved by automating risk routine credit management checks with a technology solution that can establish and predict customersâ credit behavior based on past data and trends?
How about the additional value that risk managers will contribute to achieving organizational goals by focusing on strategic tasks if routine risk management processes are automated?

Technology has tremendously impacted almost every aspect of life and business. Risk management is affected because its implementation relies on business data and processes. Results from the Deloitte GRM survey showed that institutions had recognized the potential of the latest technologies to manage risk and increase efficiency in business processes. Cloud computing (46%), RPA (29%), and machine (27%) were most of the commonly used tools by respondents. Despite this, relatively few institutions reported deploying these tools.

This article will present why there is a need to leverage technology for risk management and the types of technologies used for managing these risks.

Importance Of Technology Risk Management

Woman uses technology for risk management

Trend Analysis & Risk Prediction - Risk management technology solution facilitates data analysis to identify trends and make risk predictions to support decision-making by analyzing data relevant to risk management to pinpoint behavioural patterns.â

Easier Risk Identification, Monitoring & Escalation - Technology solutions that support risk management simplifies the risk identification and monitoring process. In the case of an anomaly or exception, issues are promptly identified and automatically reported to the right people for appropriate action.â

Scalability and Operational Efficiency - Using risk management technologies help scale up, handle workload spikes, and increase the consistencies and correctness of risk analysis and predictions.â

Compliance - Risk management technologies help ensure procedures and regulations compliance. Technologies explicitly built to provide companies with an insight into trends will help ensure that the organization is abreast of all the industry requirements.

Risk Management Technologies

Cloud Computing is the on-demand delivery of technology resources over the internet. Instead of buying, owning, and maintaining physical data centers and servers, technology applications and services are accessed on an as-needed basis from a cloud provider. Cloud-hosted risk management software helps organizations reduce exposure to risks and minimize losses through better data management. Adopting cloud-based risk management applications provides an organization with a more efficient and cost-effective alternative to buying and running an in-house risk management application.

Robotic Process Automation (RPA) - RPA is a form of business process automation that involves defining a set of instructions for a robot or 'bot' to perform. RPA is about automating some repetitive tasks and processes in the workplace, e.g., copy-paste tasks and moving files from one location to another. RPA provides multiple benefits for an organization to manage its business operations effectively. One of the benefits is the reduction of the overall risk associated with business operations. Specific use cases RPA is adopting for risk management include the Know Your Customer (KYC) onboarding process where bots can retrieve customer data from regulatory agencies to support the onboarding process. It also uses limit management by supporting the identification of limit breaches for potential review by risk managers.

Big Data Analytics - Big data analytics is collecting and analyzing large volumes of datasets to discover trends and identify to support decision-making. Data helps risk functions make better decisions. An example is to analyze customer information across various platforms to determine credit risk and the likelihood of default. From an operational risk standpoint, big data helps identifies risk areas in business operations to ensure proper risk management.

Machine Learning & Artificial Intelligence (AI) - Artificial intelligence leverages computers and machines to mimic the problem-solving and decision-making capabilities of the human mind. AI is used to enhance risk management processes. For example, performing risk analysis using machine learning to analyze data from various sources and develop prediction models to help risk managers proactively manage and address risks. Also, AI facilitates risk reduction by analyzing historical data to identify behavioral patterns and translate them to risk predictors.

Cybersecurity - Cybersecurity is a body of technology that protects internet-connected systems such as hardware, software, and data from cyber threats. Organizations in the cybersecurity space periodically publish emerging trends of cybersecurity breaches. Risk functions can leverage this information to gain insight into the risk associated with various technologies used for business processes and how they are managed.

Technology is a key enabler that supports the risk management implementation process; despite this, organizations should evaluate the pros and cons of technology solutions before implementation.

If you're interested in learning more about how risk management can help achieve your business, data, and technology goals or have any follow-up questions, please feel free to follow/connect with me on LinkedIn.

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4 Ways Technology Can Help Manage Your …

How To Score And Win The Game With A Great Business Continuity Plan!

What is a business continuity plan (BCP)?

A business continuity plan (BCP) is a system of prevention and recovery from potential threats to a company. The plan ensures that personnel and assets are protected and can function quickly in a disaster.

Understanding Business Continuity Plans (BCPs)

BCP involves defining any risks affecting the companyâs operations, making it an essential part of the organizationâs risk management plans. Risks may include natural disastersâfire, flood, or weather-related eventsâcyber-attacks, and Centers for Disease Control events (COVID-19). Once the risks are identified, the plan should also include the following:

Determining how the risk will affect operations
Implementing safeguards and procedures to mitigate the losses
Testing procedures to ensure they are optimized
Reviewing the process to make sure that it is up to date

BCPs are an essential part of any business. Threats and disruptions mean a loss of revenue and higher costs, which leads to a drop in profitability. And companies canât rely on insurance alone because it doesnât cover all the costs and the customers who move to the competition. It is generally conceived in advance and involves key stakeholders and personnel input.

At The National Football League, A Business Continuity Plan Was In Place In The Event Of A Tragic Event.

When I worked in Football Operations at the NFL, I was heavily involved on the Risk Management Team. Our team knew that the NFL had a plan if a tragic plane crash event eliminated an entire team. The plan was to have an emergency meeting involving all 32 team clubs. Team management would conduct a special draft of the existing 31 clubs, pulling enough players and staff to field a team to continue business operations for the rest of the season.

Business Continuity Plan vs. Disaster Recovery Plan

Business continuity and disaster recovery concept

BCPs and disaster recovery plans are similar; the latter focuses on technology and information technology (IT) infrastructure. BCPs concentrate more on the entire organization, such as customer service and supply chain.

BCPs focus on reducing overall costs or losses, while disaster recovery plans look at technology outages and related expenses. Disaster recovery plans tend to involve only IT personnelâwhich create and manage the policy. However, BCPs tend to have more personnel trained on the potential procedures.

6 Levels Of Business Continuity Maturity

How mature is your organization when it comes to business continuity? Does your business continuity management (BCM) program crawl, walk, or run? From self-governed to synergistic, we have identified six levels of BCM maturity that most companies fall into.

Immature

Levels 1-3 represent organizations that still need to complete the necessary program basics to launch a sustainable enterprise business continuity management program.

Level 1 â No real plan in place. A wait-and-see approach.

Individual business units and departments can organize or implement their business continuity or disaster recovery efforts. The state of readiness for disruptive events is low across the business enterprise. The business or individual department reacts to disruptive events when they occur. No actual planning is involved: business continuity recovery is reactive rather than proactive.

Level 2 â Departmental: The one and onlyâyouâre in a class alone!

At least one business unit gets it. You have reached Level 2 of BCM maturity if at least one department or business unit has initiated efforts to establish management awareness of the importance of business continuity. A few functions or services have developed and maintain business continuity plans within one or more business continuity disciplines, such as:

Incident reporting
Technology protection
Security mandates
Business continuity

At Level 2, your organization has at least one internal or external resource assigned to support the business continuity efforts of the participating business units and departments. The state of preparedness may be moderate for participants but remain relatively low across most of the company. Management may see the value of a BCM program, but they are unwilling to make it a priority at this time with minimal executive buy-in.

Level 3 â Cooperative: Moderate preparedness, but on its way to full maturity.

Participating business units and departments have instituted a sophomoric program, mandating at least limited compliance to standardized BCM policy, practices, and procedures to which they have commonly agreed.

A BCM program office or department has been established, which centrally delivers BCM governance and support services to the participating departments and/or business units.
Still lacking executive buy-in; senior management has not committed the enterprise to a BCM program.

Maturing

Levels 4-6 represent a definite plan for a maturing enterprise BCM program. If your business achieves Level 4, you are compliant with most standards.

Level 4 â Standards in place: You have climbed to early BCM maturity adulthood.

Congratulations! Your management has arrived on the scene and is committed to the strategic importance of an effective BCM program throughout the organization. In addition, there is an enforceable, practical BCM policy that adopts structure, including procedures and tools for addressing all four business continuity disciplines:

Incident reporting
Technology protection
Security mandates
Business continuity â

Level 5 â Integrated: Almost there!

At Level 5, the company meets all of the requirements of Level 4 that are now implemented throughout the company, adopting continuous quality improvements.

All business departments have completed tests on all elements of their business continuity plan, including their internal and external dependencies.

Planned methods have proven to be effective.
Management has bought into crisis management exercises.
A communications and tracking system exists to sustain a high level of business continuity.

Level 6 â Synergistic: You have reached BCM nirvana!

You not only conquered levels 4 and 5. You own it! As official business continuity gurus, you have:

Sophisticated business protections are in place and tested successfully.
Innovative procedures, practices, and technologies are working and functional in the BCM program.â

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How To Score And Win The Game …

4 Critical Components To Risk Management Success

I spoke to a senior business leader who talked about how the thoughts of navigating the risks associated with some of the business processes he currently manages keep him awake. He leads the segment of his company that coordinates customers' activities, mobile transactions, and e-commerce payments. Some of the reasons why he was worried were:

Possibility of a hacker compromising customer data for spam or identity theft
The fear that a customer data breach will result in a reputational damage
Concern that someone might use a stolen card to make an online purchase
Thoughts of an employee mistakenly sending confidential data to a wrong email

Addressing all these concerns requires a risk management strategy. An effective risk management strategy is extremely important to mitigate potential risks that might prevent the achievement of business objectives. A survey from EY showed that 84% of board members do not believe their organizations have a highly effective risk management strategy. Risk management strategy is a vital part of the risk management process, which involves the following steps:

Asset Identification & Prioritization

The first step of the risk management process is to identify the organization's assets, including physical assets, employees, information, and intellectual property. After identification, the assets are prioritized based on criticality. Assets could be classified as high, low, or medium based on their criticality to business operations.

Risk Assessment

This helps to identify, prioritize, and determine how risk is treated. It involves three (3) steps:

Risk Identification - This involves identifying threats and vulnerabilities that place business assets at risk that might impact the achievement of business objectives. Example: What are the threats to data in the data warehouse? What harmful event may cause damage to physical assets? What are the harmful events that could cause danger to company employees at work? What could cause damage to business assets? Is our software susceptible to a malicious cyberattack?
Risk Analysis - Based on information obtained from the risk identification process, the risks are analyzed and prioritized based on the likelihood of a threat's occurrence and impact.
Risk Evaluation - This examination of the risk analysis results and comparison with established risk evaluation criteria to determine whether the risk is acceptable or additional controls are required to manage or mitigate risk.

Risk Management Strategy

This is the third phase of the risk management strategy. It is also known as risk treatment. It is the approach adopted by an organization to address risk. It leverages the information and results from the risk assessment process which includes identification threat, determining their probability of occurring an impact. It varies based on the company's risk appetite.

Risk Transfer - This strategy transfers risk to an external party. It is often adopted when a company cannot mitigate the risk associated with a business activity due to a lack of expertise or other complexities. Risk transfer doesn't discard the risk but transfers the responsibility of risk treatment to another party. An example is hedging an exchange rate risk through a derivative control or outsourcing a software development project to an IT company.
Risk Acceptance - This is also known as risk retention. It applies when an organization is aware that risk related to a business activity is known and accepted because it is unlikely to occur or is within the company's risk appetite. An example is when a company decides to limit resources allocated to perform review checks for transactions below a set threshold because the probability of fraud occurrence is low.
Risk Reduction - This is also known as risk mitigation. The strategy attempts to prevent a risk occurrence by implementing a control to mitigate the risk. An example is a company implementing a customer feedback mechanism to address customer concerns and avoid customer attrition. Also, human resources can implement an exit interview process to reduce employee turnover.
Risk Avoidance - This strategy eliminates risk from occurring due to costly consequences. It applies where an organization does not engage in a business activity because its associated risk exceeds its risk appetite. An example is when the company considers an opportunity to expand its product line but decides not to continue after analyzing the business plan and discovering that it's too risky and will significantly impact the organization.

Risk Monitoring

The risk management process is an ongoing exercise. After the risk has been identified and analyzed and an appropriate risk treatment strategy has been determined, there is a need to continuously monitor risk by tracking changes in the environment, its impacts on business objectives, and existing risk management strategies. This process will help adjust strategies as required to ensure they are still relevant and effective.

There is no business without risk. Developing and implementing a risk management strategy that allows business executives to identify, address, and monitor risks is crucial to risk management success. Effective risk management creates a healthy environment to achieve business objectives and helps business leaders identify opportunities and actions they need to take.

If you're interested in learning more about how risk management can help achieve your business goals or have any questions, please feel free to follow/connect with me on LinkedIn.

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