The Changing Face of Risk Management in Today’s Geopolitical Landscape

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Companies cannot avoid risk. Factors like reputation, business interruption, increased competition and third party liability are necessary evils when it comes to doing business. Still, it’s hard to imagine the decision-makers of yesterday ever considering the geopolitical perspective required to do business in the global market we live in today. Emerging and inescapable international challenges like terrorism, climate change, cyber security, supply chain dependability and political unrest are compounding traditional corporate risk factors like never before. In fact, I would argue these costly, disruptive and damaging “black swan events” are what keep today’s C-suite up at night.
 

As a result, corporations are becoming increasingly mindful of these issues; especially when they’re directly impacted by them. In fact, research suggests companies are well aware of the “costs” associated with today’s risk according to stats from a 2016 Poole College of Management survey:

  • 57% believe the volume and complexity of risks have changed “extensively” or “mostly”.
  • 63% were caught off guard by an operational surprise “somewhat” to “extensively”.
  • 25% describe their firm’s risk management maturity as “Mature” or “Robust.”
  • 88% of Boards are asking for increased senior executive involvement in risk oversight.

That doesn’t mean corporations are sitting on their hands. To meet these challenges head on, more and more companies are embracing the growing field of Enterprise Risk Management (ERM) to measure and track Key Risk Indicators (KRI); systemically eliminating as much risk as possible. At the end of the day, every industry and every business is different but it only stands to reason that the more geographically dispersed your business becomes – and your real estate portfolio – the harder it is to anticipate and manage risk. As a result of this newly minted suite of risk factors, businesses are seeing the emergence of a new role in the corporate hierarchy; Chief Risk Officer (CRO).

CRO’s are focused on individual and enterprise-wide risk management practices. These newly designated executives are responsible for providing a framework to measure, monitor and plan for risk events; coupling data analytics strategies with proven tools and methodologies including decision science, scenario planning, due diligence, simulation and impact analysis, contingency planning and more. The role of the CRO is intrinsically tied to an organization's real estate group as the location and flexibility of assets and CRE portfolios directly correlates to an enterprise’s risk exposure.

Organizations without a CRO are fast becoming the minority as suggested by a 2016 collaborative poll between the American Institute of Certified Public Accountants and the North Carolina State University Poole College of Management. Their study claims:

  • 32% of firms have a designated individual to serve as chief risk officer or equivalent.
  • 55% of the largest organizations maintain risk inventories at the enterprise level.
  • 72% of public companies use written reports to communicate risks information to senior executives.
  • 40% of executives are “not at all satisfied” or “minimally” satisfied with the nature and extent of the reporting of key risk indicators.

 At the end of day, the contemporary geopolitical risks organizations are faced with impact every aspect of the enterprise from revenue to consumer confidence to market access. These are structurally strategic and fundamental to an organization’s success (think speed, execution, facility readiness, etc.). Take a moment and respond to our interactive poll (click the choice most important to your organization) and see where your geopolitical focus stacks up against others in the industry.

Robert Hess
Executive Managing Director, GCS

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