This year alone, organizations have grappled with the effects of geopolitical tensions, supply chain disruption, inflation, changing policies and regulations, intensifying natural disasters and a lingering pandemic. On top of these known risks, there are likely unexpected crisis events waiting around the corner.
Accounting / finance professionals and business consultants can take the lead on risk management by forming a comprehensive strategy, partnering with other functions and stakeholders, considering the unmeasurable and keeping tabs on emerging risks with help from technology.
Form a comprehensive risk management strategy
The 2022 Global State of Enterprise Risk Oversight report found that although a majority of respondents believe the number and complexity of risks have increased over the past five years, only about a third have complete enterprise risk management (ERM) processes in place.
These findings point to a dangerous planning gap for many organizations around the world. If your company doesn’t have a comprehensive ERM plan in place yet, creating one or enhancing an existing plan should be a top priority.
The ERM plan should integrate risk management with strategic planning initiatives, something most organizations struggle to achieve, according to the report. In addition to minimizing the impact of a crisis on your business, risk management processes have the potential to offer valuable insights about which initiatives are most likely to pay off and which might not be worth the risk.
Include diverse viewpoints in the planning process
As your organization creates or enhances its ERM plan, make sure you’re hearing from a diverse set of viewpoints throughout the planning process.
Open lines of communication with all key stakeholders, including customers, contractors, suppliers, community members and employees at all levels. Representatives from each function should have the opportunity to express their thoughts and concerns. Also, finance professionals should avoid using jargon and make the numbers as visual as possible to increase understanding and facilitate discussion.
By casting a wide net and soliciting feedback from a range of sources, you can decrease the chance of blind spots catching your organization by surprise.
Keep tabs on emerging risks
The list of historic or emerging risks that organizations face include the following:
Keeping tabs on risk factors and evaluating the various ways they could affect your organization is an overwhelming task. With the ever-increasing amount of available data, it makes sense to harness technology to sort through the noise and uncover insights about which risks are most likely to affect your business.
According to the 2022 Global State of Enterprise Risk Oversight report, less than half of respondents maintain enterprise-level risk inventories. To respond rapidly to crises, it helps to see them coming or at least know about them as soon as they occur. An increasing number of ERM resources are available to organizations to help detect risks and sort and organize data to discover critical insights.
Don’t rely on numbers alone
Other common blind spots organizations fall victim to include confirmation bias and an overreliance on numbers.
It might be tempting to find comfort in the clarity of numbers, and to use those numbers to confirm preexisting theories or predictions. However, relying on numbers alone means ignoring unmeasurable, but very real, factors that contribute to the situation.
Instead of presenting financial reports as static and final documents, use them as jumping-off points for cross-functional discussion and productive debate. To uncover potential blind spots, focus on asking questions rather than providing answers.
Data Source: AICPA, Hannah Pitstick
