How to mitigate risk for organisational success
"The greatest danger in times of turbulence is not the turbulence; it is to act with yesterday's logic." Peter Drucker shared these words to remind us that instead of reacting to crises when they arise, we must constantly adapt plans to manage new threats.
Risk is inevitable. It’s a constant that we must deal with in the erratic business climate of today (and tomorrow…). And businesses or organisations that strive for innovation and growth become more entangled in a maze of unknowns that can endanger their survival. So efficient and proactive risk management is a vital requirement that doesn’t just protect, but actually supports organisational performance.
A clear warning, or shall we say, lesson, of what happens when you don't adjust to a changing risk climate is, infamously, Blockbuster. At the height of its success in the video rental market, Blockbuster had about 9,000 locations worldwide, that is until Netflix appeared. While digital streaming technology started to grow, Netflix was a new DVD rental-by-mail business. Blockbuster's management disregarded them as a small player, failing to understand the larger trend toward digital, at-home consumption.
Organisational success lesson - sticking to antiquated corporate procedures in a sector that is changing quickly, isn’t a good idea; in fact we could call it a calculated error. Soon it was too late for Blockbuster, which made many attempts to transition to digital streaming after declaring bankruptcy in 2010. Good risk management in a changing corporate environment fosters long-term viability and growth.
Understanding risk for organisational success
Risks are potentials; the possibility of an event or situation that has a negative impact on any organisation's capacity to fulfil its strategic goals. Every decision and operational action within an organisation is riddled with inherent ambiguity. Risks are diverse; stemming from internal processes, external variables, and strategic decisions. Effective risk management must therefore consider the entire range of risks, or as we like to say in the business world, “opportunities” that may develop.
So what are some of these business risks that impact organisational success?
Operational risks: Your organisation's internal procedures, systems, and human resources identify these risks. Supply chain interruptions, technical failures, and execution errors are examples of operational risks, which can negatively influence operational efficiency.
Financial risks: These include possible economic losses due to market volatility, credit worries, and liquidity challenges. These risks are intrinsically related to the external economic environment, and they can have major implications for your organisation’s financial stability and development prospects.
Strategic risks: These are typically the most significant risks, since bad strategic decisions, such as entering new markets prematurely or investing in untested technology, can jeopardise the organisation's future.
Compliance risks: These refer to the importance of following laws, rules, and industry standards. Not complying leads to serious legal issues, financial losses, and reputational harm.
Reputational risks: Bad publicity, ethical failures, and scandals can harm your organisation's reputation. This damage impacts the trust employees, clients and customers have in you. It can also lower market value and lead to long-term competitive disadvantages.
We need risk; it’s an essential part of innovation and progress. Adopting critical but risky advances (unlike Blockbuster) can lead to further success, so think of risk management as critical facilitator of long-term innovation (Sull, 1999). So how do we mitigate risks?
The role of assurance in risk mitigation
How can an organisation keep itself ahead in a world where risks increase daily? Assurance. Assurance is a powerful function that builds your stakeholders' trust in you and your organisation, by systematically identifying, evaluating, and managing risks. But what is assurance, and why is it so crucial?
Organisations proactively embed assurance into their operations. Continuous attentiveness ensures that internal controls, governance frameworks, and risk management practices are in place and effective. Assurance management also ensures that these practices align with and evolve alongside the organisation's goals and objectives.
Assurance management shows your stakeholders, whether they are investors, regulators, or customers, that you’re in prevention mode. It builds their confidence that you’re not prone to problems when the unexpected, or expected happens. This also sustains a culture of transparency and accountability across your team and organisation. But what does this look like in practice?
Let’s consider aviation, where safety is paramount. Airlines with strong assurance systems don’t wait for things to go wrong; they constantly monitor and manage risks from maintenance to training pilots. That's why flying remains one of the safest methods of travel.
Technology and assurance management
Technology is an indispensable ally in effective risk and assurance management. What used to be enough with traditional assurance is losing the battle when it comes to the rates of change in modern projects, programmes, and portfolios. Technological innovation can provide better solutions that enhance the speed of assurance processes and give more accurate insights in real-time.
Imagine holding the keys to automation, data analytics, and artificial intelligence; tools that turn risk and assurance management from a reactive practice into a proactive one. These advancements could help organisations and leaders make better decisions, well before things balloon into crises.
Technology has come a long way, and now we have advanced platforms that bring together the different parts of assurance management into one system. Think of features like automated risk assessments, performance monitoring dashboards, and real-time reporting; all working together seamlessly.
In other words, technology isn’t just supporting assurance management but transforming it to become more efficient, effective and essential than ever. So does a platform that does all of this, even exist?
In short. Yes. The Firewood Assurance Service Tool (FAST) changes the way assurance management works; it’s your flexible, user-friendly platform designed to offer effective review and administration within projects, programmes, and portfolios. Whatever framework or method your organisation relies on, like Six Sigma, IPA Gateway Reviews, APM Toolkits, or your own particular method - FAST empowers you to plan and deliver necessary reviews across your entire organisation. But why use a tool like FAST for assurance and risk management?
What makes assurance management technology so useful to risk mitigation?
Formalises the risk monitoring process: How many times do risks slip through because there’s no structured monitoring? Assurance tools turn this into a continuous and systematic process, which reduces the chance of overlooking risks, and makes potential issues detectable early.
Defines monitoring and quality criteria: Ensure all your projects meet the same standard. Using an assurance tool like FAST establishes defined criteria for monitoring and quality, ensuring uniformity and reliability across your projects, programmes, and portfolios.
Keeps an eye on performance and delivery: Imagine receiving instant alerts on all your projects—FAST provides exactly that. Managers have immediate access to all the information they need for decision-making and taking corrective actions whenever required.
Assesses risk in multiple dimensions: Are you looking at risks from all angles? FAST's multidimensional assessment capabilities thoroughly examines hazards, considering the financial, operational, and reputational impacts.
What do you want to do about risks?
Risk is an unavoidable fact in business, developing and presenting itself at every step of an organisation's lifespan. As leaders of teams and organisations we have to accept this, and actively incorporate risk management into our basic strategy. Assurance management, along with innovative technology such as the FAST platform, provides a strong solution to navigate these challenges. Learn more about the Firewood Assurance Service Tool
Bibliography
Hopkin, P. (2018). Fundamentals of risk management: Understanding, evaluating and implementing effective risk management. Kogan Page Publishers.
Sull, D. N. (1999). Why good companies go bad. Harvard Business Review, 77(4), 42-52.