We predict that business culture will shift and there will be increased value on preparedness following the COVID-19 pandemic. Risk and strategy professionals can use the tools and processes of enterprise risk management to help their organizations to better respond and thrive in this new environment.
The COVID-19 pandemic has highlighted something that enterprise risk managers have long known. There is business value in being prepared.
Unfortunately, however, not everyone has always seen preparedness as a top priority. Previously, planning for uncertain future events often fell into the lonely category of important-but-not-urgent activities.
This was especially true for black swan risk events, those rare events that could materialize quickly - seemingly out of nowhere - and have severe or catastrophic impacts. Many individuals simply ignored these risks, assuming or hoping that they wouldn’t occur on their watch.
All of this creates a new environment and window of opportunity for risk and strategy professionals to use preparedness and crisis management plans to help their organizations gain real advantages as they work to emerge from lockdown. The processes and practices of ERM can be instrumental in this.
COVID-19 is showing the value of being prepared
The COVID-19 crisis has made the value of being prepared plain for all to see. Governments and organizations that were better prepared are now outshining their peers. Companies with good business continuity plans, flexible supply chains, alternate forms of service delivery and nimble decision making are setting themselves apart and positioning themselves to be early winners emerging from this time of upheaval.
And it doesn’t take a major crisis like COVID-19 to see the benefits of being prepared. Studies by KPMG, PwC, Accenture, MNP and others have repeatedly shown that organizations with strong practices in enterprise risk management (ERM) will outperform their peers across a wide range of business metrics, including revenue growth, profitability, and innovation measures.
There are many reasons for this, but most boil down to improved decision making, better achievement of objectives, and the creation of cultures that see risks as opportunities when managed properly.
New window of opportunity Despite the terrible human toll that COVID-19 is taking, the pandemic is creating a window of opportunity for those who are focused on ERM and being prepared.
COVID-19 and the ensuing economic lockdown will have lasting effects on business leaders and business culture for many years to come. Moving forward, leaders who may have previously viewed preparedness as a low priority will now innately understand the value of practices like ERM, by virtue of their own first-hand experiences. The events of September 11, 2001 continue to have a lasting impact on culture and practices almost 20 years later. It is hard to imagine that the effects of COVID-19 will be any less profound.
The value of preparedness will be further reinforced, as major crises are expected to become common, including future pandemics, climate change, social upheaval and more.
All of this creates a new environment and window of opportunity for risk and strategy professionals to use preparedness to help their organizations gain real advantages as they work to emerge from lockdown. The processes and practices of ERM can be instrumental in this.
Leveraging preparedness moving forward
Some organizations are already leading the way. For example, British firm Oil Spill Response Limited has published a COVID-19 readiness dashboard for its clients and prospects.
While the company has likely done this to inform and help their existing customers who may need them (the firm helps clients respond to emergency events among other services), the dashboard has the effect of highlighting how well prepared the company is. It is easy to see how this could help them attract new customers and to differentiate themselves from their competitors.
Even before the COVID-19 crisis, many financial institutions and other large organizations had begun asking their key suppliers to attest that they had strong and well functioning risk management programs. The logic was that if a company was going to be dependent on a supplier, then they wanted to ensure that the supplier was well prepared to withstand shocks and unexpected events. This trend will almost certainly accelerate and firms who get a jump on preparedness through enhanced ERM practices will enjoy a competitive advantage for a time, while others work to catch up.
Leveraging ERM practices - start with objectives
Preparedness efforts do not, however, have to be market-facing to have a meaningful positive impact. Risk and strategy professionals can use the tools of enterprise risk management to add value in a variety of ways. A good place to start is through the alignment of enterprise risk programs with their organization’s strategic objectives.
This approach increases the certainty that an organization will achieve its objectives, by proactively identifying the events that could interfere with objectives and then taking steps to mitigate the risks before they become a problem. This can be further enhanced with key risk and performance indicators that monitor changing conditions related to the key assumptions that were used when setting the objectives in the first place.
This approach also facilitates analysis of the new risks the enterprise may face as a result of the strategic choices it makes. For example, if an organization’s strategy is to use offshore suppliers to lower costs, an objective-centric risk analysis could help drive structured thinking around ways that the company could prepare for potential supply system shocks in the future.
Improve decision making within operational units
Another area in which risk professionals can help their organization is to help improve decision making within operational units by implementing scenario-based risk modelling using the bow tie framework.
Risk bow tie diagrams get their name from their bow-tie shape and they have become a popular tool among business managers who like their intuitive visual layout. The structure of the bow tie helps business managers to discuss and consider multiple scenarios at once, with one simple diagram that links risk events to their root causes and their ultimate consequences. Steps to manage risks can be added as pre-event mitigations (to lower the chance of an event occurring) and post-event mitigations (to lessen the impact of an event when it does occur and to get services up and running again faster).
Risk management professionals will find good success in using bow tie analysis to drive risk-based decision making deeper and further into their organizations. This will result in better decisions, better strategic execution, and the promotion of a healthy risk management culture that finds ways to manage risks and turn them into opportunities.
The COVID-19 pandemic will have long-lasting effects on business culture, enhancing the value of preparedness and creating an opportunity to use the tools and methods of enterprise risk management to help organizations adapt and thrive in the future.
Many businesses already use Tracker Networks' platforms to manage their risk. Reviews can be found on Capterra where Essential ERM scores highly with a rating of 4.5 overall. Customer comments include:
"We have multiple organizations working on a large, multi-year shared program. [Essential ERM] is used to manage the shared enterprise risks; all orgs have access and use it to review and document progress to mitigations. Also use the tool for other internal risks; the added feature to allow segregation of risks by org or people is helpful."
