One word commonly used to describe today’s business environment is chaotic. Businesses continue to work through significant challenges that have increased pressure on even the most disciplined and successful organizations across the globe.
Over the past few years alone, the global economy has been significantly impacted by the pandemic, hyperinflation, supply chain difficulties, global conflicts, and an onslaught of coordinated and increasingly sophisticated cyberattacks. Corporations are developing strategies for enhanced generative artificial intelligence, compliance with increased government regulations in areas such as ESG and data privacy, and a year of political turmoil that may impact global economic output and policy. The uncertainty has placed a spotlight on each organization’s risk management practices.
It is Organizations are more critical than ever for organizations to invest in and leverage proven risk management methodologies to better understand, prioritize, and plan for events or actions that may negatively impact overall operations, financial results, or the ability to achieve strategic goals. For most global organizations today, there are three key risks that should be included and highlighted within the risk assessment process: cyber, geopolitical, and third-party risks. Of course, these three are not the only risks that will be elevated through this process. Other factors, such as those specific to the organization, the industry, and even geography, must be weighed during the risk assessment process. This would lead to discussions about new technologies, data integrity, increased competition, the impact of climate change, and employee retention and/or hiring. However, we will focus on the three key risks mentioned above for the purposes of this article.
If you don’t invest in risk management, it doesn’t matter what business you’re in; it’s a risky business
If you read any business risk ranking report from the past decade, you would likely see cyber listed as a top ten risk. Cyber attacks have been on the rise, and as companies become more reliant on technology to provide competitive advantages and streamline processes, the risk will continue to increase. Risk management teams must work closely with their information security teams to ensure key controls are in place to protect the organization's internal network, including access controls, multi-factor authentication, network segmentation, and both constant communications and training for the global workforce. A critical element to addressing the cyber risk that is often overlooked is a detailed incident response plan that explicitly outlines the reporting chain if a breach were to occur (including both departments and individuals), the decision-making process, and the overall plan for business continuity.
The plan must be tested periodically to avoid confusion during the stress and chaos of an actual security event and to support an efficient and effective response.
Geopolitical risk will continue to create uncertainty in the global economy. Conflicts in different parts of the world have created extraordinary challenges for regional economies, energy production, and internal political strife, leading to significant supply chain disruptions. The upcoming year will see key elections in some of the biggest economies in the world that will have long-lasting impacts on regulations, sanctions, and trade policy. Leadership teams should conduct scenario planning exercises and create contingency plans for higher probability outcomes. Organizations should build enhanced supply chain resiliency plans and reassess planning models and forecasts as needed.
As businesses grow in size and reach, the reliance on third-party service providers continues to lead to vulnerabilities that may not have existed a few decades ago. This reliance has led to unique challenges for businesses as a new level of risk has been created. Businesses now rely on third parties to have strong controls in place that will prevent any slowdown or shutdown of their operations. Single source providers within the supply chain, key systems providers, SaaS providers, and other key partners all contribute to overall business risk. SOC 2 reviews, supply chain diversification, and business health reports and monitoring are all strategies to address third-party risk.
As we enter 2024, I urge you, as leaders within your organizations, to invest time and energy in the risk assessment process. Many of today’s biggest risks are interrelated and can escalate quickly if not addressed early. Use a proven model to measure your organization’s risk profile, identify top risks using a systematic approach, and partner with other key stakeholders to create plans to mitigate and manage those risks. Go a step further and partner with your strategy teams to assess how these risks may impact both short-term and long-term strategic objectives. Tie your risk assessments into the planning process. Remember, a chaotic business environment creates opportunities for those organizations that manage it best.
