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What is risk?
The question of what risk is can have many answers.
Risk is uncertainty. It is an unwanted event that may or
may not happen.
Organisations of all sizes understand that risk is an
inescapable reality; it's inherent in doing business. In
fact, when risks are properly identified, and mitigation
strategies are put in place, risk management becomes
an organisation's competitive edge -- allowing it to make
commercial decisions while cognisant of the risks, but
strategising to minimise their impact.
In a world where the use and sophistication of technology
is increasing, and making communication and access to
information as easy as pressing a button, risks faced by
organisations have become more complex. Therefore,
risk management functions need to come to the fore, to
preserve value and navigate the expanding risk universe
more effectively. Organisations need to be resilient and
effective in both managing and mitigating risk.
A global view: top risks
Organisations such as Aon, Lloyds, Deloitte and the World
Economic Forum have issued studies focusing on the most
prevalent risks faced by organisations today. The common
theme among these studies is that reputational risk is front
of mind for many organisations -- The World Economic
Forum estimates that, on average, more than 25 per cent
of a company's market value is directly attributable to its
These surveys also reveal a number of other emerging risks,
• human resources or people risk
• regulatory risks or risks associated with legislative
• natural disaster risks
• damage to reputation and brand through the
increasing use of social media
• cyber risk.
Many organisations devote substantial amounts of time and
resources to risk management; however, the predictable
1 Deloitte 2014 global survey on reputation risk, page 3
can often give way to the unpredictable, and a risk -- or
combination of risks -- can turn into a crisis. Organisations
may believe that they have their universe of risk under
control, but they may in fact be deeply unprepared for a
crisis when it emerges.
The anatomy of a crisis
Each crisis, such as a natural disaster, cyber attack, or
financial crime, has unique circumstances; however, all crises
trigger potentially complex further damaging risks that need
to be managed. Crises can significantly impact the financial
standing, reputation and critical assets of any organisation.
The relative measure of success in dealing with an
emergency or crisis is often judged by the speed of reaction
to the crisis, and how quickly mobilisation occurs. The basic
anatomy of any crisis can be represented by plotting the
effort and resources that are required to respond against
the time taken to respond.
Where an organisation is not crisis-ready, the chance to
mitigate reputational risk (and other risks) is significantly
impaired, and often not recoverable. Response and
recovery time often occurs too late, and this will shape the
way that the organisation is perceived in the marketplace
during the crisis -- and sometimes long after it's over.
Where an organisation is crisis-ready, there is a positive
influence to the time (and therefore cost) spent responding
to and recovering from the crisis. As a result, where an
organisation is crisis-ready, the organisation's reputational
risk is mitigated effectively.
Response time is critical: When a crisis occurs,
organisations are at their most vulnerable. As illustrated in
the graphs on the following page, the time taken to respond
is critical in managing and mitigating risk. Organisations
need to stay focused on the most significant issues, and
develop a prioritised strategy to address all of their issues.
You can recover to a better position: An organisation
may think that a crisis is over once immediate issues are
addressed, but this is not necessarily the case. The method
of capture and management of data, recording of decisions,
management of finances, handling of insurance claims,
and the meeting of legal requirements on the road back to
normal can determine how well an organisation recovers,
and the value it captures.
Building organisational resilience
By Philippa Murphy, Angela Sevenson, Siobhan Hennessy, Jessica Mead and Graeme Newton
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