More trends and future developments for risk-management Flashcards
1
Q
3 causes of new risks that 21st century has brought for orgs
A
- Complexity (of environment)
- Interconnectedness
- Globalisation
2
Q
Why is complexity a factor of emerging risks? (3)
A
- New and unfamiliar combinations of existing may emerge
- New risks might go undetected after emerging
- Complexity may hinder ability to accurately assess probability and impact of risks
3
Q
Factors increasing complexity: (5)
A
- Developments in IT, internet, social media
- General increase in volume and scope of regulation
- Customer expectations re. product characteristics and design
- Long supply chains, especially when international
- Use of outsourced service providers
4
Q
Why is interconnectedness a factor of emerging risks? (2)
A
- Interconnectedness can occur across country borders, across markets and across risk types (eg. Fukushima nuclear disaster affecting German policy)
- Interconnections can be hard to detect and hard to assess (especially where there is a human element)
5
Q
3 contributors to accelerating globalisation:
A
- Advances in travel and communication tech
- Fewer restrictions on international trade
- Freer movement of people
6
Q
Risks created by globalisation: (5)
A
- Cross-cultural misunderstandings
- Political extremism / terrorism
- Protectionism
- Increased complexity and interconnectedness
- Difficulty in competing with multi-national orgs
7
Q
4 techniques for assessing and controlling emerging risks:
A
- Board-level strategic environment risk assessments
- Scenario planning and reverse stress testing
- Resilience and reputation risk-man
- Fostering a culture of creativity, mindfulness and situation awareness
8
Q
Techniques for assessing and controlling risk - board-level strategic environment risk assessments - why is board well placed to identify emerging risks? (2)
A
- Knowledge of strategic environment
- Experience of board members in multiple orgs or sectors
9
Q
Techniques for assessing and controlling risk - board-level strategic environment risk assessments - one tool that can be used to facilitate this?
A
PEST analysis
10
Q
Techniques for assessing and controlling risk - board-level strategic environment risk assessments - PEST analysis - broad example of each
A
P - Political change (UK leaving EU)
E - Economic recession
S - Changing demographics (aging population)
T - Developments in AI
11
Q
Techniques for assessing and controlling risk - scenario planning (2)
A
- Structured way for orgs to understand the future, as well as associated threats and opportunities
- Can be as simple as a group discussion, and far more complex and information fuelled if desired
12
Q
Techniques for assessing and controlling risk - reverse stress testing (X)
A
- A particular application of stress and scenario testing
- Purpose is to assess the circumstances under which the org will become non-viable
- Helps and org understand vulnerabilities, so that they can better prepare for them and avoid taking decisions that may increase exposure to these vulnerabilities
- Especially common in financial services, where regulators require orgs to undertake it
13
Q
Techniques for assessing and controlling risk - reverse stress testing - 4 examples of stress testing events
A
- A financial crisis
- A major economic recession
- A major loss of assets
- A public relations disaster
14
Q
4 current examples of emerging risks:
A
- The networked economy
- Social media and digital natives
- Disruptive technologies
- Pandemics
15
Q
Current examples of emerging risks - the networked economy (3)
A
- Growth in devices connected to the internet allows for greater automation and efficiency, fuelling improvements to customer service, collective working, etc.
- Risks have emerged in the form of hackers infiltrating devices that are not as protected as traditional computers
- Developments in AI may provide further sources of emerging risks in the future
16
Q
Current examples of emerging risks - social media and digital natives - risks fuelled by social media relate to: (5)
A
- personal privacy
- security of personal identity
- fake news
- social media reputation storms
- cyberbullying
17
Q
Current examples of emerging risks - social media and digital natives - digital natives (2)
A
- Individuals born from 1990s onwards have grown up exposed to social media, and are known as ‘digital natives’
- Digital natives are more likely to share personal or sensitive information and opinions via social media, so are more susceptible to social media risks
18
Q
Current examples of emerging risks - disruptive technologies (3)
A
- New and developing technologies have led to the emergence of disruptive technologies
- These can create strategic risks for established orgs if they threaten their business models
- Attempts to exploit disruptive technology opens up its own risks, especially if rushed
19
Q
Current examples of emerging risks - disruptive technologies - 4 examples
A
- Crowdfunding
- Peer-to-peer lending
- Transportation (eg. Uber)
- 3D printing (eg. of cars, firearms)
20
Q
Current examples of emerging risks - pandemics (3)
A
- Covid-19 chocked orgs both in its rapid spread and the unprecedented control measures
- Taught orgs to expect the unexpected and to not ignore the most extreme adverse scenarios
- Highlighted the emergence of effective contingency planning, adapting to change, and org learning
21
Q
5 general examples of workforce changes:
A
- Greater outsourcing of low and mid-level jobs to emerging markets / automation
- Rapid advances in technology require requires continuous employee training to keep up
- Millennials account for largest segment of workforce and are more demanding
- Drive for diversity has created more inclusive environments
- Orgs need to rethink how to remotely manage and train employees with increase in flexible working arrangements
22
Q
7 aspects worth consideration re. human capital:
A
- In-demand skills
- Talent sourcing
- Talent management
- Talent training
- Talent risk-man frameworks
- The workforce of the future
- The role of the board
23
Q
Human capital considerations - In-demand skills (2)
A
- Rapid advances in tech and shift towards digital culture means skills like app development, cloud computing and digital marketing are in demand
- Many roles combine a need for in-depth specialist knowledge and an aptitude for ‘big picture thinking’
24
Q
Human capital considerations - Talent sourcing
A
- ‘Jobs for life’ are less common, with candidates regularly moving between roles, forcing orgs to tap into market of external candidates for managerial positions more than before
- Org’s have to use new techniques and tactics to ensure high quality recruitment
25
Human capital considerations - Talent sourcing - 5 examples of creative techniques / tactics
- Making use of social media platforms
- Forming partnerships with college communities
- Creating talent referral programmes
- Building databases of prospects before roles are available
- Redesigning job specs to focus on needs of applicant rather than employer
26
Human capital considerations - Talent management (4)
- All about attracting, empowering and retaining talent
- Talent management has become a strategic tool, aimed at creating value by aligning strategy with workforce
- As a result of a recognition that innovation is the only path to long-term performance, and employees are the only assets that innovate
- Talent management practices should continuously be reviewed to capitalise on opportunities
27
Human capital considerations - Talent management - 6 key components
- Strategic employee planning that clearly connects the org strategy to talent needs
- Talent acquisition and retention that recognises importance of in-house development
- Performance management that aligns the right person with the right role and aligns roles with the strategy
- Learning and career development programmes aligned with culture and strategy
- Compensation structures which recognise and reward contributions towards maximising long-term value of org
- Succession planning that ensures sustainability of strategy execution process
28
Human capital considerations - Talent training
- Skills are becoming outdated more quickly than ever before, so orgs must understand importance of continuous training and development
- Improves knowledge base of workforce, job satisfaction, confidence and morale
- This in turn reduces turnover and increases productivity and efficiency, and makes it easier to attract top talent
- Corporate mentoring schemes are becoming increasingly popular
29
Define talent risk-man
The process of assessing the org's employee needs and its hiring capacity, compared to what skills are available internally and externally
30
Human capital considerations - Talent risk-management
- Process typically being with an assessment of business need for specific skills in line with strategy
- Talent risk should then be prioritised, mitigated, measured and monitored
- Central elements to focus on are alignment with org, capability, cost, capacity, etc.
31
What does a talent risk-man framework do?
Help orgs to forecast, prioritise and manage talent gaps according to strategy
32
3 examples of talent risk
- Risk of misalignments between strategy and internal talent pool
- Risk of top talent becoming disengaged
- Risk of employees participating in talent programmes not complying with relevant laws and regulations
33
Human capital considerations - The workforce of the future (3)
- Automation and AI are causing certain skills to become obsolete in favour of new skills
- Orgs need to recognise this and try to recruit and develop talent in developing areas before competitors
- Complex restructurings will need to be executed in order to adapt to an increasingly digital world
34
Human capital considerations - The role of the board (3)
- Board plays key role in implementing talent strategies and managing talent risks in line with overall objectives
- Oversight should not be delegated to management, as it is so pivotal in delivering value for stakeholders
- Board should ensure it received assurance from management that talent risk is being appropriately assessed monitored and managed
35
2 key areas of digital transformation which can provide opportunities for enhancing risk-man practices in orgs:
*also sources of emerging risks
- Big data
- Automated decision-making
36
Digital transformation - what is Big data
Big data refers to new data-collection, aggregation and visualisation techniques which have been developed to cope with volume and variety of data that is now available following tech advancements
37
Digital transformation - How can big data help with risk-man?
- Can be used to help identify and assess risks, especially emerging risks
- Can be used to help identify connections and correlations between risks
38
Define automated decision-making
Where decisions are made by a computer rather than a human
39
2 broad areas of automated decision-making systems
- Algorithmic decision-making (programmed by humans)
- AI
40
Advantages of automated decision-making (2)
- Increased speed at which decisions are made
- Greater consistency in decision making
41
Disadvantages of automated decision-making - 2 for algorithmic systems & 2 for AI
- Human error in programming can create errors with systems
- Unconscious bias in system designed are hard to avoid and could be detrimental (for example in recruitment)
--
- AI is imperfect and still makes mistakes through misinterpretation/misunderstanding
- Generally, still need to be monitored by humans for these reasons
42
Governance and compliance implications of automated decision-making systems (3)
- Most laws and regs are based on notion of human agency and responsibility for actions
- This becomes less reliable with automated decision-making and especially AI, where no specific person has programmed it
- Regulators are only just starting to address these governance and compliance implications
43
3 requirements on orgs if using automated decision-making
- Make their use clear to stakeholders
- Allow stakeholders to challenge decisions and require human intervention
- Carry out regular checks to ensure systems are working as intended
44
Key choice for orgs when faced with environment filled with emerging tech
Embrace the tech, which may be costly and could be irrelevant
OR
Incur the risk that rejecting the tech will make them unprofitable or even extinct in the long run
45
4 key types of digital risks:
- Risk that an emerging tech will significantly impact the future profitability of an org
- Risk that new techs are adopted too early or are irrelevant, resulting in significant costs and little benefits
- Risk that newly adopted techs create additional risks that are not well understood or properly captured by risk-man framework
- Risk that new digital economy allows for almost immediate dissemination of negative information globally through various sources
46
Role of board re. digital risk:
- Board members need to understand that traditional risk-man techniques are insufficient to deal with digital risks
- Board responsiveness to emerging threats has never been more important
- Good governance and regular discussions around emerging digital risks are essential activities
