Creating Trust by Design

When we think about risk, most people think about bad things happening: failure, injury or loss. For this reason, most organizations tend to focus on downside risk: avoiding or minimizing potential pitfalls.

The average risk management strategy might involve updating a risk register every quarter, and plotting possibilities in an analogue fashion just as the board meeting rolls around. An Excel spreadsheet might prompt executives to reflect on the business environment and emerging risks. But this process of assessing risk is usually undertaken asynchronously to actual decision making. And rarely does it look far into the future.

The smartest organizations, though, are not just thinking about how to mitigate downside risk. They are also looking to eliminate “upside risk”: the risk of missing out on a new business opportunity.

But when an organization involves risk professionals in new business ideas at the time those ideas are being conceived and designed, then new opportunities suddenly come into range.

Consider how many major airlines have evolved their business models. Where once they made money from selling frequent flyer points to banks, these organizations now offer a range of financial services, from income protection insurance to credit cards. This could be a huge risk as it lies well outside core business. But airlines know a thing or two about risk management, and with the help of a thorough risk assessment, many have successfully made the move into the financial services space.

Or take a look at fast fashion retailer Zara, which identified an opportunity in the downside risk of placing big bets on consumer preferences and demand. Zara’s leaders recognized that a super-fast supply chain might come at a price, but that it was a worthwhile investment in a world where retailers need to innovate at pace to keep up with fickle fashion customers.

One of the biggest downside risks in the car rental business lies in the assets themselves sitting idle. Traditional car companies manage this risk by renting in daily increments, even if the customer only needs a car for a couple of hours. Zipcar identified the upside risk in that idling capacity – pricing its offerings to encourage more people to switch from taxis.

At first, it may seem too risky for the board but using a strong and structured risk management approach – and getting the right data to make informed decisions – can open new opportunities.

Leading organizations today are taking a real-time read of their key risks with the help of data analytics and artificial intelligence. With a big dataset of all potential risks, and live access across an entire organisation, leaders can spot trends quickly and make decisions on the back of real data, rather than through guess work and gut feel.

One large EY client deployed a governance, risk and compliance platform to manage workplace health and safety. But with that foundation established, the company can apply the same approach to a host of other risks – regulation to cybersecurity to modern slavery – as well as to manage upside risks.

Understanding that risks can come from every angle – upside and downside, inside and outside – can help you to make the right decisions.

Risk management isn’t about stopping bad things from happening, it’s about building trust. And with that trust comes growth.

Trust is the bedrock on which value is created – because it’s only through trust that we build the confidence of stakeholders and the confidence to seize transformative opportunities.

#Trustbydesign #RiskManagement #Analytics