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Risk Management and its role in contributing to better decision making

A future-fit risk management capability provides insights into the threats and opportunities that exist in an organisation’s micro and macro environments and feeds this into strategy processes.

12/10/2022 · 4-minute read

Risk management is all about identifying, assessing and managing threats and opportunities in the setting and achieving of strategic objectives in the presence of uncertainty. A future-fit risk management capability provides insights into the threats and opportunities that exist in an organisation’s micro and macro environments and feeds this into strategy processes. Risk management is therefore the responsibility of every person in the organisation.

In response to ever increasing complexity, and in a world of accelerating change, leaders need to apply a holistic approach to decision making, to survive and thrive - oftentimes when complete information is not available. The ultimate objectives of any organisation, regardless of its size, industry, or nature, are to meet the expectations of its stakeholders (customers, shareholders, clients, suppliers, communities etc.); remain relevant; and operate in an economically viable and sustainable manner while avoiding harm to the natural environment and society. The disciplines of strategy, risk and resilience contribute to these objectives in different but interlinked ways.

In decision-making, the process of integrating strategy, risk and resilience challenges leadership to concern themselves with performance against strategies. It also challenges them to continually test their strategic direction and strategic decision making from a risk perspective, whilst considering that risk is the effect of uncertainty on objectives (threats and opportunities). It will shine a light on the benefits of breaking down typical siloed approaches of effort across the disciplines – establishing the internal and external context; identifying the business-value drivers for value creation, growth and protection; and setting the tone of the organisation to allow for integrated thinking and reporting.

For more details, you can read the comprehensive Guideline on Integrating Strategy, Risk and Resilience published by the Institute of Risk Management of South Africa.

If you would like to speak to a Marsh expert directly, please contact us here.

Integrating Strategy, Risk and Resilience

So, what happens when leadership has set a robust strategy and effectively applied risk management - and risks still materialize? What is the “expanded” value proposition, from a risk management perspective, for example, a global pandemic?

  • It is critical that in decision making, the integration of strategy, risk, and resilience challenges leadership to concern themselves with continually testing their strategic direction and strategic decision making from a risk perspective, as risk is about threats and opportunities.
  • Excellent decision making (sound and timeous) requires the integration of strategy, risk and resilience as it means a more efficient organisation with improved agility. Adaptiveness and ability to learn. Risk and strategy should also have oversight around performance against strategy implementation, or else the strategy is just a document and not implemented. Strategy therefore responds to the external and internal environment (risk appetite and strategic risks) to either change strategic direction or manage implementation (operational risks).
  • It is also certain that no organisation can foresee everything or has the funds or human capability to manage every risk. The integration of strategy, risk and resilience improves the longer-term viability and sustainability of the organisation. The ability of an organization to be able to respond, recover and adapt as high impact risks emerge or materialize, provides the foundation for the organization to achieve its strategy and manage its risks.

Enablers to Successful Integration

A key enabler for this integration to be successful is collaboration. This collaboration is both internal to the organisation as well as external. Internally, collaboration is required between disciplines as well as between functional areas of the organisation. External collaboration extends beyond the organisation’s boundaries into its business ecosystem. This includes its suppliers, partners, customers, regulatory bodies and other stakeholders, as well as the communities in which it operates.

An organisation owes a duty of care to a wide range of stakeholders within and outside the organisation. An organisation should ensure that the needs, interests and expectations of stakeholders are taken into consideration. Integrated thinking also refers to the awareness and management of the interconnectivity and interdependency between the company’s resources and relationships over the short, medium and long term.

No organisation operates in isolation in the globally connected business environment, with seemingly insignificant or small events triggering disproportionate impacts. It is becoming more important to ensure integration and collaboration within and outside of the organisation. All organisations operate in an ecosystem comprising various stakeholders, which may be other organisations, individuals and/or communities. Collaboration with external stakeholders offers benefits to the organisation itself, but also to the industry/community/environment in which it operates.

Benefits of an integrated approach

An organization is faced with a multitude of challenges not only in setting the strategy and direction of the organization but with weighing up the appropriate risk appetite and building the correct level of resilience to survive and thrive. The benefits of an integrated approach include:

  • Enhanced reputation and shareholder value
  • Receptiveness to change
  • Better trust and stakeholder confidenc
  • Informed and future fit strategic initiatives
  • Efficient operations
  • More agility and flexibility
  • Framework to deal with knowns and unknowns
  • Reduced cost and impact associated with incidents and sudden disruptions
  • Increased coordination and integration across stakeholders

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