Prepping Your Organization for Risk Management and Threats

The business landscape is more volatile and uncertain than ever. From economic fluctuations and technological disruptions to cyber threats and evolving regulatory environments, organizations face a constant barrage of challenges.

“Economic uncertainty and market volatility continue to pose significant challenges for American business owners in 2024,” reports Emily Roberts for the Baltimore Post-Examiner. “Factors such as geopolitical tensions, trade disputes, and global economic fluctuations contribute to a sense of instability and unpredictability in the business environment.”

A robust risk management strategy is no longer a luxury, but a critical necessity.

“Having a risk management strategy is important for shaping an organization’s risk management process, including security control selection and assessment, contingency planning, and system authorization decisions,” says compliance company Secrureframe. “It’s also important for guiding both investment and operational decisions.”

Enterprise Risk Management (ERM) has evolved from a siloed function to a holistic approach that integrates risk identification, assessment, mitigation, and monitoring across the entire organization. It is the cornerstone of building resilience and ensuring long-term success.

The State of ERM in 2024

The good news is that ERM adoption and maturity are increasing across industries.

Organizations are recognizing the significant benefits of a proactive risk management approach.

Here are two key trends shaping the state of ERM in 2024:

• Regulatory and Compliance Drivers: Regulations such as GDPR and CCPA have heightened the focus on data privacy and security, driving organizations to implement robust risk management frameworks.
  
  
• ERM & ESG Integration: Environmental, Social, and Governance (ESG) factors are playing an increasingly prominent role in investor and stakeholder decisions. ERM practices can be effectively integrated with ESG initiatives to create a holistic approach to sustainability.
  
  

In addition to regulatory changes, ESG, data privacy, and compliance, Aragon Research says these are three other emerging risk management trends in 2024:

• Digital Transformation and Cybersecurity: Companies can tap into incredible new technologies to empower their businesses, but those same new digital tools are also being used by cybercriminals to attack organizations.
  
  
• Supply Chain Resilience: The fallout from the global supply chain woes during the pandemic continues as companies used lessons learned to fortify their supply chains with new agile and adaptable supply chain models.
  
  
• Remote Work Challenges: The pandemic also changed the way many of us work forever, and companies must deal with the risk associated with managing remote teams and protecting data when workers are dispersed across many environments. Employee well-being and mental health is also a focus.
  
  

Enhanced Decision Making with ERM

A strong ERM framework fosters informed decision-making at all levels. Here's how:

• Improved Profitability and Earnings Stability: By proactively identifying and mitigating risks, organizations can minimize potential losses and ensure greater financial stability.
  
  
• Strategic Alignment: ERM helps align risk management with strategic goals and objectives. This ensures that resources are allocated towards mitigating risks that pose the greatest threat to achieving strategic objectives.
  
  
• Increased Accountability: A comprehensive ERM program fosters a culture of risk ownership, where individuals at all levels are accountable for identifying and managing risks within their area of responsibility.
  
  

Effective Risk Communication and Stakeholder Engagement

Open communication is critical for a successful ERM. Here's how to achieve it:

• Breaking Down Silos: Effective risk communication requires breaking down information silos and fostering cross-functional collaboration. This ensures a comprehensive understanding of risks across departments.
  
  
• Transparency and Buy-in: Transparent risk communication fosters management consensus and buy-in for ERM initiatives. Regular reporting on risk assessments, mitigation strategies, and progress ensures all stakeholders are on the same page.
  
  
• Engaging with Stakeholders: ERM involves engaging with internal and external stakeholders, including investors, regulators, and partners. Effective communication builds trust and ensures everyone is aligned with the organization's risk management goals.
  
  

The Casualty Actuarial Society says that “ERM stakeholders are individuals or groups that have interests and/or concerns in ERM, can contribute to and influence the design and implementation of ERM and are affected by ERM.”

Leveraging Technology and Data Analytics

Technology and data analytics play a crucial role in modern ERM.

“Not many people understand that data analytics is important in risk management control and strategy. People who don’t have a business background won’t understand that the right data can improve a company in the maximum way, while the wrong data can send everything in spirals and chaos,” says the ERM Academy. “It is safe to say that businesses should focus on their data if they want to develop, flourish, and succeed.”

Here are some key points:

• Risk Management Information Systems (RMIS): Implementing RMIS allows for centralized data collection, analysis, and reporting of risks. These systems facilitate efficient monitoring and timely responses to potential threats.
  
  
• AI and Machine Learning: Artificial intelligence (AI) and machine learning can analyze vast amounts of data to identify emerging risks and predict future events. This helps organizations stay ahead of the curve and make proactive decisions.
  
  
• Cybersecurity Integration: ERM platforms should be integrated with cybersecurity and data privacy risk management systems. This ensures a more holistic view of the security landscape.
  
  

Building a Risk-Aware Culture

A strong risk culture is essential for the long-term success of ERM.

Here's how to cultivate a risk-aware culture:

• Leadership Commitment: Building a risk-aware culture starts at the top. Leaders must demonstrate commitment to ERM by integrating risk management into organizational practices and decision-making.
  
  
• Continuous Learning: Developing risk management skills through training and development programs empowers employees to identify and address risks within their roles.
  
  
• Embedding Risk Management: ERM should be seamlessly embedded into existing organizational processes and decision-making frameworks. This ensures that risk assessment becomes an automatic and integral part of daily operations.
  
  

“ERM isn't just a top-down initiative; it's a tool that empowers every employee. By aligning ERM with the organization's core vision and mission, employees can see its direct impact on their roles and the broader organizational success,” advises risk management consultant Valerie Nielsen. “ERM fosters a proactive approach, leading to better decisions and fostering innovation. Its sole focus is not on mitigating risks but leveraging them for growth. Real-life examples can drive home the tangible advantages of ERM, underscoring the importance of a risk-aware culture.”

Hamed Rezk, regional chief risk officer for The Martec Group says that “cultivating a risk-aware culture within your organization can bring a multitude of benefits, impacting different aspects of its performance and well-being” with key advantages such as:

• Proactive risk management
• Better decision-making
• Enhanced adaptability
• Reduced compliance issues

Emerging Risks and Future Trends

The risk landscape is constantly evolving. The 12^th annual survey “Executives Perspectives on Top Risks for 2024 and a Decade Later”, conducted by the Enterprise Risk Management (EMRM) Initiative and global consulting firm, Protiviti, found the following emerging risks for 2024 ranked as:

1. Economic conditions, including inflationary pressures.
2. Ability to attract, develop, and retain top talent, manage shifts in labor expectations, and address succession challenges.
3. Cyber threats.
4. Third-party risks.
5. Heightened regulatory changes and scrutiny.

“Economic conditions and inflationary pressures emerged as the top near-term risk for 2024. Continuing a trend highlighted by the last two years’ surveys, finding and retaining talent remained a major concern,” said the survey authors.

And a decade from now, the executives think they need to be prepared for the following risks, ranked in order:

1. Cyber-threats
2. Ability to attract, develop, and retain top talent, manage shifts in labor expectations, and address succession challenges.
3. Adoption of digital technologies requiring new skills in short supply.
4. Rapid speed of disruptive innovations enabled by new and emerging technologies and/or other market forces.
5. Heightened regulatory changes and scrutiny.

“Over the next decade, technologies such as artificial intelligence, cloud, and the anticipated emergence of quantum computing will change how organizations secure their data, raising significant security-related questions,” said Sameer Ansari, Protiviti Global Security & Privacy lead. “To adapt quickly to new technologies, many organizations are increasing reliance on outsourcing and co-sourcing arrangements to achieve operational and go-to-market objectives. Cyber threat risks arise as organizations must ensure their third-party vendors, as well as the third parties’ own vendors, are complying with current laws and regulations to ensure their data and their customers’ data is secure.”

Risk Management Blueprint: Innovative Solutions

By proactively identifying, assessing, and mitigating risks, organizations can achieve greater resilience, enhance decision-making, and ensure long-term value creation.

“Everything we do in life involves a little risk. When you own and operate a business, you open yourself up to different variations and levels of risk. If you want to insure your business properly, you need to integrate that risk into your overall strategy,” says Kyle Dean, President & CEO of Dean & Draper.

Investing in ERM initiatives fosters a culture of accountability and transparency, leading to increased stakeholder confidence and a competitive advantage.

Whether it's implementing an RMIS, fostering a risk-aware culture, or leveraging data analytics, organizations that embrace a proactive risk management approach will be better equipped to navigate the challenges and opportunities that lie ahead.

Contact Dean & Draper today for a partner in helping your business mitigate risk.

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