Is Forecasting Critical Risks Becoming Harder?
Nearly half of risk professionals and C-suite executives believe that forecasting critical, emerging business risks will get more difficult over the next three years, according to results from the annual Excellence in Risk Management survey from Marsh and RIMS, the Risk Management Society™.
According to the survey:
- 48% of respondents said forecasting critical risk would be more difficult or significantly difficult in three years.
- 26% said it would be just as difficult in three years as it is today.
- 26% said it would be slightly easier or significantly easier.
The results align with a recent survey from the Association for Financial Professionals and Oliver Wyman, one of the Marsh & McLennan Companies, in which 86% of finance executives said forecasting critical risks will be the same or more difficult in three years.
Why the Increase in Difficulty?
For one thing, the risk landscape is changing like a version of Moore’s law, seemingly doubling in complexity every few years. The interconnected dynamics of geopolitics, technological advances, global economic integration, social instability, climate change, and more mean that the manifestation of one risk is increasingly likely to influence others. So when a known risk — auto accidents, for example — meets with an emerging risk — self-driving cars — the outcome is not easy to predict.
The combination may exacerbate volatility and create new exposures that could significantly damage organizations that have not prepared for the convergence of the old and the emerging.
And there are additional reasons behind the feeling that risks will get more difficult to predict, including the simple fact that other work gets in the way. Consider the current emphasis on cyber risk at many organizations. “The data stuff has gotten so much priority within the company — and that's great — but the short side of that is that other things may not get as much attention,” the vice president of risk management at a major telecommunications company told us during an Excellence focus group discussion.
The growing interconnectedness among risks creates an environment where keeping up with evolving issues becomes more difficult. Therefore success in risk management now often comes to organizations that are risk ready, that develop a multidimensional approach to identifying and managing complex risks.
They are able to not only see the risks around the corner, but also to understand that they may interact in not-so-predictable ways with existing risks.