Risk-welcoming or risk-averse — which approach proved best in 2021?

Considered risk-taking or a risk averse corporate culture? Which approach stood organizations in good stead last year as thanks to the pandemic, uncertainty continued to prevail?

Consultancy firm BDO’s ‘Global Risk Landscape Report 2021’* survey set out to learn how senior executives fared last year in the face of prolonged uncertainty and mounting pressures wrought by Covid. In his introduction to the findings, Partner and Global Chair of Risk & Advisory Services and BDO, Nigel Burbidge said, “When information is limited and conditions are chaotic, businesses must be ready to react and react to the reality of their situation. Our survey shows that this is more likely to happen in organizations that have managed to develop a risk-welcoming attitude. Businesses must accept the existence of unknown risks — and deploy key tools and strategies to manage them effectively.”

Reporting on the survey, the official magazine of the Institute of Risk Management published ‘Risk-averse companies lose out in 2021’, an article highlighting the Report’s headline finding — how companies that were prepared to embrace and manage risk fared better than their risk averse counterparts who actively avoided it. Within this piece, Burbidge is quoted, “Those who managed to make fast, effective decisions were better able to pivot business models and keep staff up-to-date and motivated. Others suffered from decision paralysis, waiting for news to inform their next steps.”

SOME KEY SURVEY FINDINGS

Out of 500 c-suite executives polled globally, across a diversity of industry sectors, 53% said as risk-welcoming organizations, they fared better than expected. 52% of risk averse companies reported worse impacts than anticipated, while this was the case only 25% of risk welcoming companies.

‘Uncertainty, or lack of clarity’ was the reason for one in four respondents not adapting to the challenges and changes of the pandemic as quickly as they could have.

Becoming more agile when it comes to managing risk and overcoming risk aversion is of course easy enough to advise, but how should the movement towards greater agility be tackled? In the Report’s Executive Summary, Burbidge points out how fostering an environment of trust and keeping information channels open helps to promotes a positive corporate culture. “In particular, our survey shows the importance of trust in facilitating information flow. Trust empowers employees to speak up without fear of reprisals. To reap the benefits of this, effective business leaders need to foster a high-trust, low blame company culture.”

FUTURE-FACING RISK MANAGEMENT

The Executive Summary sets out themes that companies might consider in order to evolve their risk management practices and principles to cope better with uncertainty. Amongst these are “changing blame culture and attitudes to risk; the usefulness of formal risk management practices, such as assessments and frameworks; and the effective use of up-to-date technology in developing data-driven risk assessments.”

RISK MANAGEMENT AND THE ROLE OF TECHNOLOGY

42% of survey respondents cited inadequate technology as “a top three risk that applied extra pressure on them during the pandemic. For risk averse respondents, this was the number one pressure point. Conversely, 57% of respondents regarded the acceleration of digital transformation as one of the top three positive changes stimulated.

According to the Report’s Executive Summary, “Risk management is not only a driving force behind technological innovation and improvement, but also that technology is essential in the evolution of risk management: from reactive to proactive to predictive.

“Organizations that plan for and manage risk will be the winners in a post-Covid economy, no matter what the future holds.”

BETTER EQUIP YOUR ORGANIZATION FOR FUTURE-PROOF RISK MANAGEMENT

Learn how Sword GRC’s world class risk management software can help your organization move towards a more risk-receptive and agile position, better placed to meet the challenges of an evolving risk landscape.

Discover more about the benefits of building a positive risk culture with the Institute of Operational Risk’s white paper ‘‘Risk Culture - Operational Risk Sound Practice Guidance’

*Global-Risk-Landscape-Report-2021.pdf.aspx (bdo.co.uk)

** Risk-averse companies lose out in 2021 - Enterprise RiskEnterprise Risk (enterpriseriskmag.com)