How businesses can respond to global risks

At company level, resilience is required as global risks can adversely affect company’s results and be existential. Global risks are connected, and businesses need to look at risks that could have a direct or indirect impact on their operations. 

The interconnectedness of global risks can create surprises. As we learned with COVID-19, risks do not respect borders meaning a global risk can have devastating local implications. Against this background, businesses must understand the triggers, trends and scenarios to look out for, and to prepare for the possible consequences of any of those risks, and therefore determine the best holistic response.

If business leaders don't look at risk holistically, they won't be prepared to respond to the connected risks of infrastructure failure, cyberattacks, energy price shock and many others that directly impact their business ecosystems (i.e. markets, customers, operations, competition intensity).

Businesses should integrate risk management into the strategic planning process and use tools like bold scenario planning to link global risks to business impact–also considering “large impact but small likelihood” events. At an operational level, companies should build risk scenario impacts into their strategies at corporate and business level.

Responding to global risks must start at the highest level in companies. (i.e., board level):

• Boards play a pivotal role in defining the company’s risk appetite and in identifying the key risks that affect the enterprise.
• Boards also own the risk agenda because they own the strategy. Therefore, risk and strategy are inherently intertwined.
• To achieve a company’s strategic objectives, the board must decide what risks it is willing to take which drives the company’s agenda. But it doesn’t stop there.

Global risks exert a huge impact on the company’s success or failure, both at an operational level and often more importantly in terms of its overall business strategy requiring the C-suite level to drive the behaviour throughout the organisation.

It is important to create a culture of risk awareness and build resilience into the business. One way to manage global risks is to encourage diverse and challenging perspectives –starting within the boardroom. Then search for ways to embed and incentivize appropriate behaviours throughout the organisation. It is the people and the culture of the entire enterprise that will determine if these risks can be successfully navigated.

When a global risk occurs, boards and risk managers must consider the potential impact of various global risks on their physical assets, operations including supply chains and people.

Natural catastrophes and adverse weather can interrupt supply chains, which have become longer and more complex and are therefore more vulnerable. Companies must assess their supply chains risks and build supply chain flexibility and resilience, which involves business continuity planning, physical loss prevention and various forms of risk transfer including insurance to fund impact mitigation post event.

As well as taking measures to manage and mitigate short-term disruptions, sustainable businesses should strive to create a framework to support longer-term enterprise resilience. In a world moving so fast, “not-in-my-term-of-office” is no longer an option and the time to act is now. Building an enterprise resilience framework will help to actively manage both the downside and upside from global risks.