Preparing For Emerging Risks With Proactive Strategies

Against a global risk backdrop of escalating political polarization and market effects from higher borrowing costs, organizations are facing a number of emerging risks in 2024. Some of the most pressing risks include mass generative artificial intelligence (AI) availability, cloud concentration risk, and regulatory changes around climate disclosures, cybersecurity disclosures, and use of AI. While there is no way to predict the exact velocity at which these risks will accelerate, the first step to mitigating emerging risks is to identify and understand them. Yet, despite their significance, risk teams often struggle to successfully incorporate emerging risks such as these into their risk activities.

In the eBook Tracking the Untrackable: Taking a Proactive Approach to Emerging Risks, AuditBoard explores the major obstacles blocking businesses from successfully integrating emerging risks into their risk programs. Download the eBook here, and continue reading below to learn four essential steps for turning a reactive approach into a proactive approach toward emerging risks.  

Challenges of Identifying Emerging Risks

Identifying and tracking emerging risks requires vigilance and awareness. Methods like trend analysis, scenario planning, and horizon scanning can help organizations anticipate and prepare for these potential threats before they escalate. Yet, many risk professionals and enterprise risk management (ERM) groups struggle to identify emerging risks for several reasons:

1. Lack of a “risk-aware” culture. The lack of a risk-aware culture is one of the biggest blockers to identifying emerging risks. A risk-aware culture is set by leadership and establishes the tone for a business’s risk activities to be aligned with its risk appetite and key strategic objectives. Without a culture of risk awareness, the business will not be incentivized to embed risk management in its processes, which is essential for identifying emerging risks. One sign of a poor risk-aware culture is the lack of internal reporting mechanisms for front-line staff to report emerging risks up the chain of command.
2. Insufficient bandwidth. Risk teams, often bootstrapped and carrying substantial workloads, often find themselves primarily occupied with daily tasks like financial risk assessment and mitigation planning, leaving little room for addressing new and emerging risks. This lack of bandwidth often results in blind spots, as there is insufficient time for the necessary research and analysis. Without the ability to focus on the strategic perspective of risk management, including emerging risks, businesses may overlook crucial aspects of their risk exposure within their industry.
3. Insufficient technological resources. Without effective tools for collecting and analyzing risk data organization-wide, manually tracking the business’s risks in spreadsheets and shared drives is a challenging task for risk professionals. Outdated risk tools that do not enable risk managers to transfer ownership of present and emerging risks to front-line risk owners — and that do not enable front-line personnel to escalate emerging risk information to other parts of the organization — can also lead to critical gaps in coverage.  

Transforming Blockers Into Pathways for Success With Connected Risk Technology

Connected risk technology can help risk teams establish a risk-aware culture and free up their resources, which can be directed toward emerging risks. Below, we explore how connected risk technology can help transform the risk blockers described above into pathways for success. 

1. Establishing and promoting a risk-aware culture. While a culture of risk awareness starts at the top with C-suite engagement and sponsorship, a risk-aware culture is executed and maintained by the organization. As a result, risk teams must enhance their engagement across all business levels. However, this expanded engagement entails additional effort for risk teams already grappling with talent and skills shortages. Connected risk technology helps by:
   1. Centralizing and unifying risk data in one location. Visibility into the organization’s risk universe is essential for risk professionals to perform trend analysis, scenario planning, and horizon scanning. Further, when risk data is centralized in a single location, risk stakeholders across the organization, from the executive suite to front-line risk owners, gain better visibility into new risks, risk trends, and risk appetite — all of which are important for proactively managing and responding to emerging risks. 
2. Freeing up the risk team to focus on emerging risk identification and analysis. By automating processes like risk assessments, risk rating, and reporting, connected risk technology reduces the administrative workload on risk teams, freeing up their time to focus on more valuable activities such as scenario planning, trend analysis, and stress testing. The following are examples of how a connected risk solution can create efficiencies:
   1. Streamlines collaboration between risk teams and risk stakeholders; for example, automating risk assessment workflows. 
   2. Streamlines change management; it is easier for new risk owners and reviewers to get up to speed if they join during the middle of a project when information is centralized in a connected risk system.  
   3. Backend reporting can be helpful for identifying gaps; for example, if there is a missing corresponding signoff, the risk team can easily identify the appropriate stakeholder. 
3. Engaging your front-line risk owners. Not only is it important to scan for risks on the horizon, but it is also important to have a strong internal mechanism for the front line to report on emerging risks, as they are the people closest to new risks the business is facing on an operational level. Connected risk technology helps by:
   1. Empowering risk owners to own their risks. By providing a mechanism for risk owners to easily propose new risks directly in the platform, a connected risk solution helps to promote risk awareness across the organization. In addition, the front line can report on risks, capture losses, and respond to risk events in real time. 
4. Prioritizing and building resilience strategies. Once risk data exists in a centralized location and front-line risk owners are empowered to report emerging risks, risk teams are empowered to prioritize emerging risks and build resilience strategies around them. A connected risk solution facilitates this process by:
   1. Helping the business visualize the emerging risks via dashboards and heatmaps. These features help the business easily identify risks that are more likely to happen or can have the biggest impact and visualize trends over time, which empowers them to prioritize those risks and take action. 
   2. Driving mitigation action plans through automation and workflows. Connected risk technology automates the process of assigning mitigation plans to risk owners, and also supports automated workflows that enable risk stakeholders to execute mitigation plans with speed and efficiency. 
   3. Facilitating issue tracking. A connected risk platform enables risk teams to get instant visibility into issue remediation progress and automates follow-up on outstanding tasks. 

With the right support and resources, forward-thinking professionals can transform emerging risk roadblocks into pathways for success. Connected risk technology can facilitate this process by enabling organizations to proactively identify, assess, and respond to emerging risks. Through streamlined collaboration, automated processes, and real-time reporting, connected risk technology not only frees up resources but also facilitates the prioritization of resilience strategies such as horizon scanning, trend analysis, and stress testing. By establishing a risk-aware culture, centralizing risk data, and empowering front-line risk owners, organizations can navigate emerging risks with confidence and agility, turning potential obstacles into opportunities for growth and success.