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Risk management
Risk management

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4 Emerging risk management and horizon scanning

Risks are continually changing, either due to changes within or outside an organisation. An organisation needs to keep on top of these changes to make sure they don’t get caught out. Organisations will try to look into the future to anticipate the potential changes on the horizon and give them as much time as possible to plan and respond to these changes; this is often know as horizon scanning.

To help with their horizon scanning activities some organisations add an additional dimension to their risk assessments, that of risk velocity. They use the term ‘velocity’ to refer to the speed at which the risk could impact – the quicker the impact the less time the organisation has to react, and the more important business continuity (BC) and crisis management plans become.

Organisations may also attempt to differentiate risks between those which are likely to become longer-term trends, and thus create a material shift in the business or industry, against those which are likely to be a more short-term ‘event’ that may be temporarily disruptive but could act as a trigger to a new norm.

The timings of either trends or events are extremely difficult to predict with any degree of accuracy so instead risk managers will rely on scenario (what if) analysis, described in Session 3, to bring together multiple visions of different realities that may exist given certain circumstances. Risk managers can then look at what risks might exist in these scenarios and how resilient the business is currently or how it might need to change to respond to these scenarios. The business can take a view of how plausible the scenarios are and consider this in deciding if it needs to respond to a particular scenario.

The plausibility of a particular scenario can be driven by a number of factors, including, but not limited to, industry dynamics, wider political and economic indicators and technological advances. However, an approach often used in scenario development is to consider what key milestones and changes would need to happen before a particular situation could come to pass. The more of those milestones that have happened or seem likely to happen, it follows that the more likely the scenario is to come to pass and thus the more likely that the company will face the risks present. Those milestones can often be categorised to make identification easier using a PESTLE analysis as described in Session 3. Consider a historical example to demonstrate this, the Demise of Ocean Liners [Tip: hold Ctrl and click a link to open it in a new tab. (Hide tip)] .

The benefit of considering emerging risk can be seen in the ocean liners case study. Within 15 years these vast ships that had originally been huge investments for their owners became redundant in providing Atlantic passage and had to find a new market catering for newly wealthy holidaymakers seeking cruises. Looking back to Session 1, Kodak failed to see the significance of digital photography, despite designing it, and Rolls-Royce did not move fast enough to capture the widebody engine market.

Take a look at the following articles, which look at the adoption of electric vehicles and their emerging risks:

Now that you’ve looked at some emerging risks, consider some emerging risks in your own industry and develop some scenarios using a blank version of the toolkit.

Table 1 gives an example of some factors to consider.

Table 1 Emerging risks for the adoption of electric vehicles
  • Taxation would have to become less reliant on fossil fuels
  • Regulators respond to increasing pressure to respond to environmental crisis by
    • increasing the cost to run older technology
    • incentivising electric technology
    • prohibiting use of activity (e.g. cannot drive diesel cars in cities)
  • Access to vehicles would need to be affordable, whether through total ownership or through alternative use methods
  • Society would need to accept:
    • the alternative power sources (and changes in use this may require – e.g. overnight charging)
    • autonomous control taking over from humans
  • There would be a shift in the labour market as ‘driving’ jobs disappear
  • Ethical considerations around automation would need to be resolved (e.g. in the event of an accident scenario how should automation respond)
  • Autonomous technology would need to reach a point where it was reliable to the extent where failure would be so remote that society could accept the residual level
  • Power technology would need to reach a point where it is comparable to ‘current’ alternatives
  • Infrastructure to support technology would need to be in place (e.g. power charging points, ‘traffic signals’ that can communicate with vehicles)
  • Legislation would need to be changed to allow for automation within the driving environment
  • Industry changes would need to consider how liability is apportioned in the event of a failure
  • The insurance industry would need to shift to consider automation
  • Environmental pressure increases to the point where burning fossil fuels is unacceptable