Business

Businesses can no longer ignore the need for risk intelligence

Financial stock market graph. Risk intelligence can be a tool for identifying opportunities as well as mitigating potential harm.

Risk intelligence can be a tool for identifying opportunities as well as mitigating potential harm. Image: Getty Images/iStockphoto

Hersh Shah
Chief Executive Officer, Institute of Risk Management - India Affiliate
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  • Risk intelligence is the ability to identify potential risks and take the right action to mitigate them.
  • Risk intelligence bolsters an organization’s resilience and can help it identify new opportunities.
  • To make the most of risk intelligence, organizations should implement robust Enterprise Risk Management processes.

The world is increasingly complex and interconnected. To manage this change, an organizational-level focus on risk — preparing for them, mitigating them — is essential.

For this, organizations must focus on risk-intelligence: the ability to identify, assess, and manage risks effectively in various domains, from business to finance to health and beyond. Risk intelligence is a crucial skill that enables individuals and organizations to gather and analyse relevant information, and use it to navigate uncertainty, make informed decisions and achieve their objectives while mitigating potential negative outcomes.

Today, risk intelligence is essential. The economic and business environments have experienced a series of external shocks and internal uncertainties. Market fluctuations, complex regulations, natural disasters, cyber threats, geopolitical instability, health crises, fake news and more all represent potential risks they must be prepared for.

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Risk intelligence for success

Knowing what can go wrong and what can stop a business from achieving its goals is essential for success.

Individuals and organizations with high-risk intelligence tend to be more resilient competitive. They can respond to market changes and seize opportunities. They make better decisions, allocate resources more effectively and manage disasters well. It also helps to manage critical relationships: demonstrating a robust risk intelligence can inspire confidence among stakeholders, including investors, customers and employees. Internal culture, too, benefits, because it fosters a culture of accountability and vigilance, encouraging employees at all levels to consider the implications of their actions and decisions.

Many sectors are subject to regulations that require risk assessments and mitigation strategies. An integrated risk intelligence approach ensures that regulatory requirements and compliance are consistently met across the organization.

Integrating risk intelligence

Defining a risk culture with an effective tone from the top and implementing a robust Enterprise Risk Management (ERM) process across an organization is the ideal starting point to develop risk intelligence across the value chain.

ERM has become indispensable in today's volatile business environment. The Institute of Risk Management defines ERM as “an integrated and joined up approach to managing risk across an organization and its extended networks” — widening the scope of traditional risk management beyond financial risks alone.

ERM covers a 360-degree perspective to risk management, including ESG (Environmental, Social, Governance) risks. With an effective ERM process, organizations are equipped to identify, assess and manage risks. ERM enables businesses to align their risk appetite with their strategic goals, optimizing decision-making and resource allocation. It also fosters a risk-aware culture, where potential threats and opportunities are proactively addressed. ERM is not just about avoiding pitfalls but also about seizing opportunities in an ever-changing landscape.

To develop entity-wide risk intelligence, organizations should focus on the following.

Risk leadership, governance and analysis

Identify a risk leader or Chief Risk Officer who can lead the ERM function, develop a risk policy and shape the risk culture with support from the Board and Risk Management Committee. The risk leader is responsible for ensuring the risk governance and periodical involvement of all business units in identifying current and emerging risks. Once risks are identified, they need to be analyzed to gauge their probability of occurrence and potential impact.

This process involves gathering relevant data, interpreting patterns, and making informed predictions. Risk intelligence also requires the leader to understand organisation’s risk tolerance, which varies from person to person and organization to organization.

Risk champions

Create risk champions across every department and business function who can identify and analyse risks in their domain. These risk champions are drivers of risk-based thinking and risk-based decision making in their vertical in the pursuit of wider business objectives.

Education and training

The types of risks we have to manage are always evolving. Organizations should invest in continuous education at the board, management and functional levels. Risk champions too should be trained in problem-solving, analytical thinking and negotiation skills. Programmes of study exist to help in this regard.

Continuous assessment

Regularly reassessing risks and risk management strategies is essential to stay up-to-date with changing circumstances. Risk intelligence also calls for learning from past failures and successes and encourages individuals and organizations to adapt and improve their risk management practices continually.

Collaborative approach

Sharing knowledge and experiences with others in the field can provide valuable insights and new perspectives. Integrating risk intelligence into decision-making processes allows for a more comprehensive and balanced assessment of potential outcomes. It helps in choosing the best course of action while considering potential risks and rewards.

Data-driven decisions

Utilizing data and analytics to support decision-making can lead to more accurate risk assessments.

Scenario planning

Conducting scenario analysis and horizon scanning helps in identifying new potential risks and devising appropriate responses to black swan and grey rhino events.

In sum, effective risk intelligence throughout an organization ensures that risks are understood, managed and turned into opportunities for growth and advancement.

By nurturing risk intelligence, individuals and businesses can enhance their resilience and improve their chances of achieving their goals while minimizing adverse outcomes.

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The views expressed in this article are those of the author alone and not the World Economic Forum.

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