The Connected Risk Journey: How to Discover Risk When and Where It Really Matters

“This is the decade of uncertainty. A leading global forecaster, Kristalina Georgieva, she’s the head of the International Monetary Fund, predicted the future back in January 2020 when she said, “If I had to identify a theme at the beginning of this decade, it would be uncertainty.” How could she make that statement? Well, they had been working at the IMF on a major research project for about a year in advance of that statement, and they were about to release their World Uncertainty Index. This is a leading risk indicator for all of us as to where we’re headed. Now, this World Uncertainty Indicator (WUI) includes data on 143 countries with at least 2 million in population. It comes from the Economist Intelligence Unit, and their reporting on these 143 countries across a range of data, including economy, policies, and politics, in each individual country on a quarterly basis measuring back 60 years — so, a huge data set. When this was published back in the beginning of 2020, this index was at its highest point in history, and this was just before the pandemic really took full force. It continues to trend higher today, and with greater volatility, as Ms. Georgieva predicted.””

“I live in Atlanta, Georgia, in the southeastern United States, and love to go up to the Blue Ridge Mountains… we were rushing to get everything in our car so we could get out of town and up the mountain. I had checked detailed weather forecasts and was prepared for a huge snowstorm that was going to hit. My wife, on the other hand, was looking at the traffic indicators showing a huge amount of traffic leading out of town. So while I was rushing to try to get everything into the car while my wife was at a more leisurely pace, we were working off of different risk indicators. We finally headed up the mountain, and lo and behold, the snowstorm hits. I was prepared, and I put on my tire chains. We continued up, and we started to see cars on the left and the right off into the ditches. As they sped into the turns, they just went straight off. Luckily, as we headed into those turns, we knew how treacherous it was, we also were prepared with those tire chains, we had an all wheel drive vehicle, and we accelerated up the mountain to our destination.”

“Now, this is very similar to what we face today, and what we’ve already faced. It really goes to show there are two key elements that you need to keep in mind as a audit, risk, and compliance leader when you’re headed up this mountain.”

“Getting up this mountain of uncertainty, you need a special vehicle, and that vehicle needs to be equipped to give you greater risk visibility looking into the future, but also greater risk understanding based on where you’ve been and what you’ve seen. It needs the ability to monitor, measure, and inform, both by current readings that you may have on your dashboard, but also future warnings that you may receive, as new vehicles come equipped with heads-up displays. What is coming ahead? How can we prepare?”

““So what are CEOs really interested in as it relates to risk management? What are they seeking in greater investment? They are looking for an integrated, practical approach to risk management that’s coupled with a balanced view of risk. Coming out of Gartner, I’ve put together a model that I call the Integrated Risk Management Navigator, which I’m going to share with you today, and talk to you about how my conversations and research into the chief executive officer, and that person’s needs as it relates to risk management, manifest in a more integrated approach to risk management.”

““Now that you have a better understanding of the four objectives, and why they’re PRACtical in the mind of the CEO, I want to share with you how they’re connected. To be successful, these four risk objectives must be linked through greater risk visibility, as well as through greater risk understanding. The visibility comes from a horizontal view of risk across three primary risk domains, technology and cyber risk, operational risk, and strategic or enterprise risk.”

““Not only do you have to have that broader horizontal view and greater visibility of risk across the business, you need to couple that with a more vertical view of risk that is manifested in two key areas.”

““This full, integrated view will provide that context that I just described, but then also start to pull together the four risk objectives in specific risk areas, and start to enable key business leaders to connect the dots. For example, you’ve got specific risks that may be aligned with an objective more over another, but they’re highly connected to other objectives.”

“As you begin to talk and build new relationships with executives, and helping them gain a more integrated, balanced view of risk, you also have to start speaking in their terms. What we have all been trained on and conditioned to focus on from a risk management perspective, is the heat map. The heat map helps us understand, what are the high risks within the organization, what are the low risks in the organization, driven by both impact and likelihood. This is more of a tactical view that is necessary, and it cannot go away, but it is focused on loss minimization, and it’s borne out of the insurance industry in helping to drive residual risk to its lowest point.”

““Now, I can say this with certainty, when I would present a heat map to senior executives, their eyes would roll back in their head, because they knew that, unless you’re in the insurance industry, this is not going to help drive the business forward. While it may help avoid those losses, it’s not going to help grow the business in any way.”

““These new business priorities all point to future risk, and create a new demand for connected technology that can tie these risks together and inform better business decision-making. Going back to my initial analogy to the car and the driver, the car provides all sorts of information — and it’ll provide a lot more information into the future — but it’s the driver that makes all the difference in understanding how these things relate to one another. It really comes in the form of connected risk.””

““Connected risk, I will tell you, is the combination of people and technology and managing risks, and providing greater visibility and understanding of those risks. As you saw here at this event, with the unveiling of the connected risk dashboard, that information is critical to making superior business decisions. But I’ll tell you, the dashboard is just the start. The dashboard, much like a car, tells you what’s happening today. What you also need to have in place is an understanding of what’s coming ahead. And so, similar to innovations in electric vehicles and others with heads-up displays, with a windshield view of what’s coming, that’s what’s coming with AuditBoard. More focus on leading risk indicators, like the World Uncertainty Index, but also leading risk indicators that are specific to your own risk profiles.””

“Pulling those together in a way that gives you the ability to act, and that’s the real difference. By connecting risk in this way, you’ll take your organization beyond simply expecting the expected to embracing the unexpected. It’s those leaders and organizations that embrace the unexpected, that are prepared for the unexpected, that are going to speed through the turns, pass the other cars who are in the ditch, and be at a greater advantage.”