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Business shifts require refreshing of risk management techniques


By Ken Tysiac

Companies are undertaking major transformations to respond to global market shifts, and risk management techniques need to keep pace with the changes.

Sixty-two per cent of more than 800 executives and risk managers from businesses who participated in a PwC global survey said organisational change and restructuring has created risks for their businesses.

Insightful business leaders are developing strategic responses to manage risks that result from market and business transformation, according to a report on the survey, which was to be released today. These include:

  • Anticipating and responding. More than half of the companies surveyed will be applying horizon scanning, early-warning systems, scenario planning, and flexible risk appetite statements.
  • Talent management. Risk-related performance incentives and talent audits that identify skills gaps are becoming more popular with companies.
  • Monitoring technology. Companies responding to the survey will nearly double their use of intellectual property, brand and reputation audits over the next 18 months in an effort to address growing risks from digital technology and social media.
  • Using sophisticated analytics. Companies will use advanced techniques to identify hidden patterns and risk linkages in large sets of data. Use of integrated risk data warehouses is expected to double among the companies surveyed, and use of risk dashboards is expected to increase 50%.

“In today’s unpredictable environment, companies need techniques to anticipate unknown risks and structures that are resilient to risks when and where they occur,” Dean Simone, leader of PwC’s risk assurance practice, said in a news release.

These new responses are necessary because large numbers of companies are venturing into uncharted territory. Two-thirds of survey respondents have undergone a major transformation in the past 18 months, and another 11% plan significant changes over the next 18 to 24 months, according to the report.

Company leaders are responding to global market shifts by building new business models, tapping into digital channels, and expanding into new markets. They also are considering supply chain efficiencies and determining how the location of their facilities fits into their plans as major transformations occur.

Risks identified in the survey included:

  • A major global economic downturn, which is seen as the most serious risk and considered likely by nearly two-thirds of respondents.
  • Increased taxation in industrialised markets, considered probable by two-thirds of respondents.
  • Technology, as 59% said business transformation will make their companies more vulnerable to technology risks. The biggest specific risk cited by respondents is that major IT programmes will fail to produce expected benefits.
  • Social media, which more than 40% said is likely to put them at risk in the next 18 months.
  • Entering new geographic areas and markets, which 47% said will expose them to further risks.

“Changes in business direction have also exposed companies to new risks,” Simone said, “and the interplay of market and business transformation is creating complex risk linkages that can be fragile and difficult to predict. This complexity requires businesses to rethink their approach by taking a holistic, multifunctional view of managing risk.”

Ken Tysiac (ktysiac@aicpa.org) is a CGMA Magazine senior editor.

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