More trends and future developments for risk-management Flashcards
COMPLEX AND CONNECTED RISKS - THE MODERN WORLD AND GROWTH IN EMERGING RISKS - COMPLEXITY
What are the 3 primary and interrelated causes of new or changing risks?
What is complexity?
What does complexity add to?
How is complexity increased? (5)
(1) Complexity
(2) Interconnectedness
(3) Globalisation
Complexity is partly a function of globalisation and interconnectedness, but these are not the only sources of complexity
Complexity adds to the potential for risks to emerge or for large increases in probability and impact
Complexity is increased by many factors, including:
1. developments in IT, the internet and social media;
2. increase in the volume /scope of regulation, (e.g. CG and environmental protection)
3. the size and structure of organisations
4. long supply chains, especially when international;
5. the use of outsourced service providers.
COMPLEX AND CONNECTED RISKS - THE MODERN WORLD AND GROWTH IN EMERGING RISKS - INTERCONNECTEDNESS
Name an event that highlights and demonstrates the interconnectedness of the modern world.
What does this show? (3)
Why may significant risk exposures emerge?
The Fukushima Daiichi disaster (tsunami event caused by an earthquake led to property damage and damaged the Japanese economy) shows interconnectedness can occur across country borders, markets and risk types
(1) One risk (a geological event) can affect another (stability of the financial system).
(2) One market (the energy market) can affect other markets (the supply of manufacturing goods).
(3) An issue in one country can affect other countries, or even the whole world.
= some interconnections can be hard to detect or assess (significant risk exposures may emerge)
E.g., it is very difficult to predict how financial markets may react to events such as a terrorist attack or an earthquake
COMPLEX AND CONNECTED RISKS - THE MODERN WORLD AND GROWTH IN EMERGING RISKS - GLOBAILISATION
What is globalisation?
What has contributed to globalisation? (3)
What is the benefit of globalisation?
What are the risks caused by globalisation? (6)
= the trend of increasing interaction between nations and people of the world
(1) Advances in travel and communication technology, coupled with (2) fewer restrictions on international trade and (3) the free movement of people
Benefit = has helped to improve economic development around the world
Risks include:
1. cross-cultural misunderstandings, where a product name or marketing campaign may cause offence in certain countries (Ford Nova)
2. political extremism and even terrorism fuelled by concerns around a loss of cultural identity;
3. unbalanced economic development as labour and capital move to more desirable locations;
4. national businesses and organisations may find it hard to compete with multi-nationals;
5. local IT infrastructures become vulnerable to attacks from around the world;
6. increased levels of complexity and interconnectedness in areas like financial markets
MANAGING EMERGING RISKS
What is an emerging risk? (2)
How are emerging risks categorised?
Name 4 current examples of emerging risks.
Why are emerging risks had to assess and control?
What are the 4 techniques for assessing and controlling emerging risks?
Emerging risks are one of the following:
(1) a completely new risk that has only recently emerged; or
(2) an existing risk that increases in significance (probability and impact).
Emerging risks are characterised by high levels of uncertainty and change
- The network economy
- Social media and digital natives
- Disruptive technologies
- Global pandemics
Emerging risks are hard to assess and control due to high degree of uncertainty and unpredictability
- Techniques for assessing and controlling emerging risks include:
1. board-level strategic risk assessments;
2. scenario planning and reverse stress testing;
3. resilience and reputation risk-management; and
4. fostering a culture of creativity, mindfulness and situation awareness
MANAGING EMERGING RISKS - BOARD LEVEL STRATEGIC ENVIRONMENT EMERGING RISK ASSESSMENTS
Risks often emerge from what?
Why should the Board identify emerging risks? (2)
What technique can be used to facilitate a strategic environment emerging risk assessment?
Risks often emerge from the broader strategic environment as a result of factors like complexity, interconnectedness and globalisation
(1) The board’s knowledge of the strategic environment makes it well placed to identify emerging risks (board members require a good understanding of the broad PESTEL environment)
(2) Board members may have experience in multiple organisations or sectors.
PEST analysis is a strategic tool that can be adapted to help identify emerging risks
MANAGING EMERGING RISKS - SCENARIO PLANNING AND REVERSE STRESS TESTING
What is scenario planning?
How can it be simple or complex? (What is systems thinking?)
What is reverse stress testing?
What is the purpose?
What does it help an organisation do?
Where is reverse stress testing especially common?
Scenario planning = a structured way for organisations to understand their future, as well as the risks and opportunities that may be associated with this future.
Can be as simple as a group of people discussing future risks and opportunities OR can be more complex and involve techniques like systems thinking = a structured thought process that involves mapping out systems and relationships between systems
Reverse stress testing is a particular application of stress and scenario testing.
Purpose = to assess the circumstances under which the organisation will become non-viable
= helps an organisation to understand its vulnerabilities and how extreme future events may affect its ability to continue as a GC and help better prepare for them
Especially common in financial services, where regulators such as the PRA require financial institutions to undertake reverse stress testing
MANAGING EMERGING RISKS - SCENARIO PLANNING AND REVERSE STRESS TESTING
How does reverse stress testing differ from conventional stress testing?
Conventional stress testing examines the effect of low probability and high impact risk events on an organisation
Reverse stress testing goes further, to examine destructive events that threaten the solvency of an organisation.
= The idea is to determine the financial breaking point of an organisation.
CURRENT EXAMPLES OF EMERGING RISKS - THE NETWORK ECONOMY
What is the internet of things?
What are the 3 organisational benefits from the internet of things?
What are 3 risks?
The growth in devices and appliances connected to the internet has resulted in what is called ‘the internet of things’ with the aim of making life easier
Organisational benefits from the internet of things include (1) improved customer service, (2) supply chain and operational efficiency and (3) new forms of collective working via file sharing, video conferencing
New risks have emerged from this growth of the ‘internet of things’ incl.
1. Cloud-based computing creates new data security and integrity challenges.
2. Hackers look for vulnerabilities in devices like homes, TVs and fridges, which may not be as protected as traditional computers.
3. Fraudsters may be able to exploit security weaknesses to obtain financial rewards
CURRENT EXAMPLES OF EMERGING RISKS - SOCIAL MEDIA AND DIGITAL NATIVES
Name 3 risks that social media has led to.
Who are digital natives?
What is the key risk that has emerged with the growth of digital natives?
- Personal privacy and the security of personal identity;
- fake news;
- social media reputation storms where videos, events and opinions may be spread around the world in a few hours.
Those born from 1990s onwards who have grown up with technology and have different attributes towards social media and the nature of privacy = comfortable conducting lives over the internet
cyber bullying = where social media is used to bully individuals and groups.
*Organisations additionally have to address cyber bullying in the workplace.
CURRENT EXAMPLES OF EMERGING RISKS - DISRUPTIVE TECHNOLOGIES
new technology like smartphones, internet and social media have led to what?
Name 5 examples.
Disruptive technologies create what kind of risks?
Organisations that try to exploit disruptive technologies can experience what? (4)
Led to the emergence of disruptive technologies that threaten established organisations and business models.
Examples include:
1. Transportation (uber)
2. peer-to-peer lending;
3. app-based product ordering and payment services
4. 3D printing
5. price comparison services.
Create strategic risks for established organisations who may find that they are superseded by new entrants that are better able to exploit modern technology.
Organisations that try to exploit disruptive technologies can experience a range of implementation risks including (1) legal challenges, (2) hacking attacks, (3) system failures or (4) operational risks, especially if the organisation grows too fast for its operational processes
CURRENT EXAMPLES OF EMERGING RISKS - GLOBAL PANDEMICS
What were the 2 lessons for organisations from Covid-19?
What is the relevant case study?
(1) expect the unexpected and not ignore even the most extreme adverse scenarios = be ready to manage impacts far greater than imagined previously
(2) highlighted the importance of effective contingency planning, adapting to change, and organisational learning
Case study = H-E-B:
* Supermarket based in Texas was praised for early response to Covid = maintained supply chains and coped with sudden changes in consumer demand while keep staff and customers safe
CHANGING KNOWLEDGE AND SKILL
Human capital is one of the most important intangible assets an organisation has.
What should be a key priority for senior management and the board?
Over the last decade, there have been a number of structural changes in the workspace including what 3 things?
Attracting the right talent (skilled, educated and adaptable employees)
- more low to mid-level jobs are being outsourced to emerging markets or computers.
- Rapid advances in technology requires continuous employee training to remain agile and up-to-date
- Increase in flexible and remote working = organisations have to rethink how they manage and train their employees
CHANGING KNOWLEDGE AND SKILL - IN-DEMAND SKILLS
What are the 5 most in-demand skills and why?
Many roles increasingly combine a need for what?
Name 6 personality traits that are greatly sought after by prospective employers.
= data science, application development, cloud computing, digital marketing and advanced statistical modelling are in demand (due to rapid advances in technology and a shift towards digital culture)
Many roles increasingly combine a need for in-depth specialist knowledge and an aptitude for ‘big picture thinking’
Personality traits such as attitude, motivation, curiosity, collaboration, adaptability and agility are greatly sought after by prospective employers.
CHANGING KNOWLEDGE AND SKILL - TALENT SOURCING
Why have employee turnover rates increased dramatically?
What does this mean for organisations? (2)
Name 6 souring tactics.
= people have become more mobile (no longer want ‘job for life’)
(1) forced organisations to tap into the market of external candidates across different managerial levels
(2) Organisations have realised that hiring talent requires a well thought-out process and creative sourcing tactics, such as:
- making use of social media platforms such as LinkedIn;
- forming partnerships with college communities;
- organising company insight sessions;
- creating talent referral programmes;
- building databases of prospective employees before vacancies are available
- redesigning job specs to explain how a particular job opportunity can benefit the applicant instead of focusing on the needs of the employer
CHANGING KNOWLEDGE AND SKILL - TALENT MANAGEMENT
How has talent become a form of currency?
Talent management has become a strategic tool within HR planning, aimed at what?
What are the 2 benefits of talent management?
What are the 6 key components of talent management?
Who typically develops and manages talent management programmes?
Talent has become a form of currency = an intangible asset which directly contributes to an organisation’s profits and losses.
aimed at creating value by aligning the business strategy with its workforce
Benefits
(1) should create a competitive advantage for the organisation and helps sustain LT performance and innovation
(2) continuously reviewing talent management means the organisation can capitalise on its talent employers to grow and expand into new market
The key components of talent management are:
1. strategic employee planning = connects the organisational strategy to talent needs;
2. talent acquisition and retention = recognises the importance of in-house development;
3. performance management = aligns the right person with the right role
4. Learning and career development programmes
5. compensation structures = recognise and reward employees
6. succession planning = ensures the sustainability of the strategy execution process.
HR or a designated talent management executive with a direct communication line to the board
