Strategic Risk Intelligence
“Using the current thinking models and behaving in a ‘conservative’ manner is possibly becoming the most cavalier and reckless way to manage an organisation. Strategic risk intelligence is now crucial to anyone leading an organisation and must be embraced in risk, strategy and assurance if organisations are going to be able to hold their ground and continue to move forward.” Todd Davies, Theme Leader.
Most managers feel well equipped to understand and respond to the regular crises that emerge day to day. Risk management processes have permeated most organisations which give middle management a sense of comfort that they have things broadly under control.
But those who read the financial press will be aware that there are a series of emerging state changes which are not picked up by their normal risk management processes. As such, Directors and Chief Executives reviewing their risk profiles often feel that all of this effort in risk management is missing the big picture.
The dilemma is that senior managers and those responsible for oversight are too busy in day to day routines and don’t have the models to personally develop a cohesive understanding of key events that need to be watched, and how to frame the emergence of such events. Without a ‘discontinuity watchlist’ that they understand and the capability to frame these events they are at risk of being out of touch and time to act appropriately, open to un-quantified risk, and open to losing the initiative to leverage potential opportunity.
What is also true is that the models that we have relied on in the past are no longer relevant predictors of future events. Some would say that the world has moved from linear to exponential. We would say that people have been looking at the linear part of exponential curves without understanding the greater context of mega forces, mega trends or the interconnectedness of a broader range of systems.
Using resilience thinking we work to provide cross-sectoral analysis of the emerging mega shifts which have the potential to cause significant disruption to your organisation.
Consider the following:
- Actuarial models are based on past events within a fairly static set of parameters - these parameters have changed and therefore their predictive capabilities have also changed
- Economic valuation models are based on empirical analysis of past trends and therefore face the same problems as the actuaries - leading academics will tell you that Black Scholes and other popular models no longer work, and haven’t for decades
- Economists are still using Keynsian and Freidman based fiscal and monetary policies - does anyone really believe that increasing interest rates will fix inflation which is driven by underlying issues in energy, infrastructure, food, oil and water?
- Analysts will tell you to buy and sell shares based on 2-4% inflation and GDP growth and therefore assume that 3-5 year earnings are predictable without understanding the broader context of industry shifts
If you are responsible for leading, managing or analysing any organisation, there are significant shifts which must be factored into your strategic planning and your risk intelligence. We would argue that including this kind of analysis in your planning will make for great success and that ignoring it is cavalier and reckless.
To find out more about how we can help develop your emerging risk capability contact Todd Davies our theme leader on this topic.
Recent video and articles
Please feel free to watch a short video which explains this topic in greater depth, or browse through our articles on emerging and strategic risk.
The Real Risks of Business as Usual
Todd Davies, Practice Leader - Risk
Perth 2008, Duration: 14m 58s
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Browse our recent risk articles here.
