Speed of Digital Transformation is the Key Risk Management Challenge

The ever-changing business landscape has pushed executives to rapidly revise and adapt their strategies and operating models. However, the need for agile business movement also comes with a significant risk. According to the India highlights of PwC’s 2022 Global Risks survey, which saw answers from 109 Indian respondents, almost 8 from 10 business executives express their concern about the risk associated with the speed of digital and other transformations.

The survey also unearthed some interesting highlights about risk management: 70% of business leaders surveyed are increasing their spending on risk-management technology, 67% of them are investing in risk culture and considering behavioral risk. Moreover, 64% of them also feel that they need to actively seek external insight to assess and monitor business risks.

Concerns about risk management are also shared amongst professionals across the company function, as seen in the diversity of respondents. Business executives represent 72% of respondents, followed by risk management (13%), audit (10%), and compliance (6%) professionals.

Responding to the survey, Sivarana Krishnan as the partner and risk consulting leader of PwC India said that companies need to upgrade their organizational risk management and broader resilience to be able to adapt quickly to support business agility. Furthermore, upgrades to the aforementioned functions are needed to enable companies to make decisions swiftly, reliably, and timely. He also said that risk management capabilities will greatly help companies when they are embedded within the companies’ strategic plan and decision-making process. With a panoramic view of emerging risks, leaders can make confident decisions to pursue their short-term or long-term business strategies.

The pandemic’s impact on the work environment continues to disrupt talent and labor markets. Supply shortages, sanctions, and growing raw material costs are increasing supply chain risks as organizations cope with upstream supply chain risks associated with subcontractors and other fourth parties, which further complicates risks.
According to the survey, customers, investors, and other stakeholders are currently focusing their efforts to tackle environmental, social and governance (ESG) issues, which can each bring major risks on their own. However, since ESG risks are inherently linked with each other, any one risk can have far-reaching consequences across the organization and jeopardize their brand and image.

This survey also finds that many business leaders think that they need to review and alter their strategies and operating models rapidly to respond to the unstable economic climate. In this context, the survey highlights five key actions that organizations should consider to upgrade their risk management capabilities, including engaging early and getting risk insights at the point of decision, taking a panoramic view of risk, setting and employing risk appetite to capitalize on the upside of risk, enabling risk-based decision making through systems and processes, and doubling down on top risks.

Khrisnan also noted: “Any one person cannot manage risks. When it comes to business, risk management is the ultimate team sport. Teams across all the three lines of defense in risk management need to work together to build a risk resilient organization and thrive in an environment which is turbulent and disruptive”.

Investment in risk procedures, frameworks, and supporting systems is required to assist an organization in deploying a standardized and consistent risk management strategy. According to the survey, while 76% of organizations expressed that having IT systems that don’t operate together is a big risk management concern, only 28% of them are addressing the concern at a formal, enterprise-wide level.

Risk appetite is an important tool for assisting company executives in determining where they are willing to accept greater risk in search of new possibilities and development. It defines the boundaries within which the board expects executives to operate when they make choices and carry out their objectives. Risk culture also plays a role in capitalizing on risk’s upside. A strong compliance culture, for example, might inhibit innovation, whereas an insufficient compliance emphasis can have unintended influences on brand and reputation.

Another insight that was found from the survey is that organizations which embrace risk management capabilities as a strategic organizational competency are five times more likely to be extremely confident in achieving stakeholder trust, a growth-minded risk culture, greater resilience, and report better numbers in their results. Strong risk management capabilities assist in safeguarding the organization from adverse risks while also allowing it to look ahead and take chances in pursuit of development. It’s a win-win situation for everyone. On top of that, the top 10% of respondents — those who are reaping the advantages of strategic risk management techniques – anticipate quicker revenue growth and better outcomes.