A New Kind of Insurance Policy: Data-Driven External Risk Management
9 June 2021 - By Maeva Charles, VP of Partnerships and Client Solutions, Datamaran
When it comes to addressing challenges presented by the external risk landscape, more is expected from the C-suite than ever before. The “shareholder interests-only” approach is no longer viable - instead business leaders are being held to account by a far broader range of stakeholders. This is made all the more problematic by the accelerated rate by which external risks are emerging and developing.
In order to keep pace, Enterprise Risk Management (ERM) is evolving. I recently discussed this topic with Katie Rowen (SVP and General Counsel, Vontier) and Will Weerts (Partner, EY) during our Global C-suite Forum on Digital Transformation and ESG.
Looking at traditional approaches to ERM, there are a number of limitations. Assessments of external risks are often based predominantly on views and perceptions from selected internal stakeholders about the outside world - which is needed, but not sufficient - and limited external data. As a result, the assessment is subject to human bias and “processing” limitations respectively; and lacks breadth and consistency. In addition, with the infrequent (often annual) completion of these assessments, decisions made as a result are reactive rather than proactive. Lastly, ERM can be siloed in a business, thus lacking the full variety of perspectives available that add value from a strategic standpoint.
In order to address these weaknesses, there are three ways in which ERM can be improved upon:
- Higher quality information;
- Effective use of technology;
- Integrated enterprise risk process.
Higher Quality Information
In order to mitigate the influence of bias when assessing and addressing the external risk landscape, leaders should turn to data. By making decisions supported by facts, additional credibility to these decisions is added. Furthermore, when considering the limitations of human judgement, there is the danger that in being too close to an issue, changes are missed.
However, having a broad and robust dataset presents the opportunity for issues to be monitored beyond the focus of individual awareness. Using data to complement internal expertise increases objectivity and transparency, supports evidence-based decisions and enhances trust in the process.
Effective Use of Technology
Technology enables such valuable, data-driven insights to be extracted. Furthermore, technology can facilitate a more automated and dynamic approach when it comes to monitoring the external landscape. With digitally enabled solutions, it is feasible to complete risk assessments more frequently and make them standing agenda items with “fresh” data for strategic meetings throughout the year. In this way, business leaders can keep a pulse on those accelerated changes and even the weaker signals (easily missed through the traditional annual, manual risk assessment process).
“Digitally-enabled and data-backed risk management provides a new kind of insurance policy for corporate leaders, since ultimately, a risk really can be an opportunity that you just happened to see too late.”
Susanne Katus - Datamaran
Integrated Enterprise Risk Process
Whilst it is commonplace for organisations to have both a risk function and extensive risk processes, very little time is actually spent on embedding those with the corporate strategy, nor on embedding this risk culture throughout all business functions. As a result, organisations are failing to achieve full benefit from their ERM, and are even leaving themselves exposed, particularly to external risks, which are outside the control of companies.
Instead, ERM should be integrated throughout a business’ functions to become an inclusive process that brings all the right experts to the table. Increasing visibility and communications in this way is critical to ensuring the long term vitality and prosperity of an organisation.
"How do you weave [your ERM Process] together, to make it more integrated, to ensure that you have the right lense applied to all issues internally: through an inclusive environment and an inclusive process, with the right internal stakeholders and experts.”
Katie Rowen - Vontier
Effective implementation of dynamic, digitally enabled and data-backed risk management does indeed offer a new kind of insurance policy, and enables corporate leaders to take ownership of a wider range of external risks. As Will Weerts, Partner at EY, highlighted, “when it comes to Enterprise Risk Management, there is a much broader audience than your shareholders paying attention to what you're saying and what you deliver. Transparency, as well as the quality of the information shared, is the game changer”.
By implementing these three changes to enhance External Risk Management, leadership will be more fully informed and up-to-date on the risks most critical to their business. With this extensive and up-to-date view of the external landscape, not only will C-suite ensure they are fully informed on the material issues, but they will be empowered to educate and speak on these issues to their stakeholders with great credibility, including those issues relating to ESG.
Global Insights Report: The Three Big Wake-Up Calls For Boards
The events of 2020 brought risks related to public health, climate change, and diversity, equity, and inclusion to the forefront of public consciousness. Yet, too many businesses are failing to incorporate external and ESG risks into their long-term strategies and to think about business model innovations to reorient towards long-term value creation.
Published jointly by Datamaran and The Conference Board, this Global Insights Report examines how some of the largest public companies reacted to the events of 2020 in their corporate reporting. It considers how senior executives and Boards can apply this knowledge in addressing other systemic and external risks.
Get your complimentary copy now and learn how to use real-time data to monitor the external risks landscape and stay on top of trends.