Any organisation will encounter issues along their journey, but there are certain types of business risks that need to be more carefully considered compared to others based on what is happening around us. Whilst the most relevant risks to your business may vary based on size and industry, there are emerging societal trends that will have profound effects on how all businesses operate (or should be operating) moving forward.
For many businesses, it is whether they can effectively navigate these challenges and types of risks that will determine if they are ultimately successful or not. As 2020 was so determined to prove, these roadblocks can present themselves in many forms…
The word ‘risk’ is loosely thrown around, but in the context of business it is encountered every day. Every opportunity has risks on the other side of it. By definition, a business risk refers to factors – both internally and externally – that can threaten or negatively impact a company’s financial health or ability to succeed. This can be anything that implies uncertainty in returns, danger of loss, and unforeseen events that can threaten a company's ability to achieve sustained success.
For example, business risks can include factors like:
The reality is that the risks a business may face are endless, so classifying them into types of business risk helps to prioritise what will be most relevant for your respective business or industry, based on your priorities, goals and stakeholders.
Types of business risk can be categorised into economic, physical, natural, environmental, cybersecurity, materials, regulatory, customer, compliance, security, fraud, financial, reputation, operational, and much more.
But this begs the question, which business risks should you be preparing to face in the near future?
We have narrowed down 5 types of risk we think are especially relevant for businesses in 2021 and beyond.
Cyber Security risk (or cyber risk) is an exposure to harm or loss from cybercrimes - attacks, data breaches and attacks on information systems. These risks are associated with financial loss, disruption, or damage to an organisation's reputation from failure and unauthorized or erroneous use of its information systems.
As businesses navigate the digital world, adopt new technologies and develop a stronger reliance on data for everyday operations and service delivery, businesses expose themselves to new sources of cyber risk. Just look at the way modern supply chains now operate, there aren’t just third-parties, there are also fourth, fifth and sixth-party vendors to consider.
This is not to say businesses should avoid embracing this change, but instead to acknowledge that there are risks and dynamics that may have greater ramifications than they can anticipate (as they are not completely understood yet).
Whilst some businesses see these changes and the accompanying compliance requirements as a burden, these are actually opportunities to prove how you go the extra mile.
Businesses need to adopt a GRC solution where they can manage ongoing compliance activities, develop an internal security management system and execute risk assessments of potential cybersecurity threats.
Every year an increasing number of new regulatory requirements are released by governing bodies to adapt to changing norms. In 2020 alone, there were 50 countries that launched new data security & privacy regulations – and that is just for one industry! Businesses are expected to continually adjust how they operate to meet these changes and remain compliant.
Compliance risks arise when a business fails to meet these new requirements. This can happen for many reasons. Namely, from a failure to develop appropriate company policies and controls, insufficient awareness or training, a lack of due diligence, or simply human error.
With varying levels of scrutiny across different industries, some businesses take shortcuts to avoid the associated costs of revised training, processes and technology.
Conversely, regulatory risks are centred around the disruption of, or loss of business that new regulation can inflict on current practices or the overall economic value of an enterprise.
Take the EU’s GDPR as an example. When it was first released, not only was it costly to adapt to these new obligations, but this was made worse by how difficult it was to understand the obligations themselves. Even now, according to one report, the average spend for firms to comply with GPDR regulations is in excess of US$1.4 million.
In the long run, a failure to consider compliance and regulatory risks will result in more harm than good for an organisation, particularly with respect to continuity and potential reputational damage, fines or even jail time. Even one of the world’s largest companies, British Airways, was subject to fines of over AU$329 million for GDPR compliance breaches.
Ensuring alignment with industry best-practices requires a considered approach to internal governance structures and practices. Only by developing a greater understanding and confidence around the relevant regulatory expectations will organisations be able to address compliance and regulatory risks more effectively.
Geopolitics centres around the political powers at play within a given region or country. Typically, it is heightened political or religious environments that can cause divisiveness at both national and international levels. A handful of other instances that can affect geopolitical instability include elections (particularly rigged elections), trade sanctions, war, land disputes and even just general divisiveness over politically contentious issues in some countries (like Women’s rights or human rights).
All of these examples pose direct risks to businesses in the region and can have massive ripple effects across a local economy, commodities, international relations and so much more. International and local cooperation tends to suffer from relationships that become more contentious as political priorities linked to geography continue to shift.
Environmental issues can contribute toward geopolitical instability, causing social unrest and general chaos. How the people and government approach geopolitical instability risks can directly affect economic performance, social stability, energy utilisation, indigenous representation, regionalisation of political state nations and other issues that have recently resulted in the provocation of nationalist sentiment (like the COVID-19 crisis).
The volatility, uncertainty, complexity and ambiguity around how the environment continues to change over the next few years and beyond directly affects how businesses will operate moving forward. Globally, extreme weather events, natural disasters, biodiversity loss, climate change action failure and increasing contamination define both the actual and potential threat of adverse environmental hazards and risks. Of all the business risks mentioned in this article, environmental risks have the greatest potential to have catastrophic consequences.
Our natural environment is facing issues like water contamination, air pollution and resource depletion amongst a host of other rising environmental issues. As nations and businesses alike continue to be driven by modernisation and effectively ignore these issues, things will only get worse.
The same goes for governments as these issues will only be exacerbated by the lack of intervention addressing new environmental risks, nefarious actors and curtailing practices that are known to be environmentally damaging. Outside of this, corporate social responsibility initiatives adopted by influential organisations will be a key driving force in convincing others to balance growth and development with growing environmental concerns.
But, environmental threats, whether they manifest physically, chemically, or biologically, will have greater, yet to be seen consequences for both nations and organisations.
Did anyone anticipate COVID-19 pandemic in your country or globally?
The entire world is still in the midst of the COVID-19 pandemic, with some countries beginning to look toward recovery and vaccination campaigns. More than any time before, the global response to this pandemic has been the quickest and most successful in human history. But, that’s not to say we can continue to practice ignorance of the unknown unknowns.
Imagine how much better off we would have been if there were resources devoted to pandemic response and businesses had developed contingency plans before we were hit? Society as a whole would have been better for it.
Despite warnings from notable individuals like Bill Gates, the world was vastly unprepared for an outcome of this nature. Government and businesses clearly believed that the odds of this happening were too insignificant to take into consideration, let alone plan for.
Whilst there are no guarantees as to what was would happen in a pandemic, at the very least discussing these issues as potentialities would have forced organisations and teams to consider their ideal responses. And subsequently, would have placed them in better stead to face our initially unknown foe, COVID-19.
In the long run, a failure to consider the unknown unknowns and pursuing cost-cutting measures will cause organisations to incur business and economic loss instead of solidifying their ability to adapt or bounce back.
The risks faced by businesses will continue to expand their scope as operations and supply chains become more complex. Organisations need to start adopting a proactive, considered approach to business risk management if they want to succeed. Whilst many of these types of risk have been around for some time, the advent of the digital world will present new dynamics and a list of risks that will continue to grow at unprecedented rates.
It is those that think outside the box and best prepare for these risks that will have the most success turning them into opportunities. Whether it is an internal awareness/education program, risk assessment, risk review, ISMS, updated policies or adoption of the latest industry best-practices - all these efforts will ultimately strengthen businesses longevity.
A refusal to prepare for these risks will hinder your ability to effectively operate and continue to achieve your objectives. It will erode trust with existing stakeholders and make it more difficult to foster future relationships. Some will even lead to significant economic loss or abject business failure.
Whilst organisations cannot avoid most of these types of business risks completely, taking steps to mitigate their impact will best position your organisation for continuity and sustainable development through 2021 and beyond.
Our team can help you ensure business continuity and deliver trust to your stakeholders. If you feel you can benefit from a solution that helps to transform these types of risks into opportunities, book a demo of the 6clicks platform below. We are eager to help.