Risk mapping, or risk modelling, is an essential part of any modern risk management strategy. Any organisation using enterprise risk management software or IT GRC tools would be widely advised to use a solution that has strong risk mapping functionality.
To manage and mitigate risk effectively, organisations need a thorough understanding of their immediate and long-term risk environment. In a complex and rapidly changing world, gaining this understanding is not always easy and risk mapping plays an important role in providing it.
There are more risks facing businesses in 2020 than at any other point in time, but risk mapping allows an organisation to know which risks are the greatest threat and then decide what priority they should be assigned. This reduces the impact of each risk and allows that organisation to plan for the future with more confidence.
However, occasionally something will come along that catches an organisation unaware. Either they haven’t included it in their risk mapping, or if they have done, it is such an unusual occurrence that it hasn’t been mapped out as effectively as it needed to be. Coronavirus is a good example of this. But such occurrences only really serve to illustrate how important risk mapping and risk modelling are.
Modern risk and the need for risk management software
Such is the volume and variety of risk in modern business, any organisation that is attempting to manage risk without the use of enterprise risk management software is only adding more risk to a growing portfolio. Not only does such software allow an organisation to monitor and track the many threats that it is facing, but it also means they can assess the impact it might have on their business.
Two recent examples of new threats emerging are GDPR and Brexit. Both had been signposted a long time before they actually arrived, and organisations had plenty of time to prepare and make allowances. With GDPR, risk mapping would have included what might happen if an organisation fails to report a breach or meet other requirements for compliance.
With Brexit, risk mapping would have been more complex, because there were (and are) many more unknowables. What will the future trade agreements between the UK and EU be like? What would the impact be of reduced sales in the UK for EU companies and vice versa?
Sensible businesses would have used the risk mapping functionality in their risk management software to try and understand the nature of these risks. General speaking, risk models have become much more sophisticated since the financial crisis of 2008-09, but these models have mostly struggled to cope with the coronavirus pandemic.
Coronavirus – risk mapping the unmappable?
Traditionally, risk mapping is based on mostly historical data, which is why models have found it difficult to cope with coronavirus. There is little precedent for the disruption to global supply chains, much of the world working remotely and many of the world’s major cities in lockdown.
Although as a virus, its characteristics were broadly understood, there were too many unknowns to make risk mapping a simple task. What will the timescales be for social distancing, how long will lockdowns last in different cities and countries and what will the impact of these policies be on the global economy?
Despite this, there is still huge value in risk mapping and risk modelling around events such as coronavirus. Risk management software has evolved since the financial crisis and can play an important part in helping steer organisations through such a crisis now.
Navigating the crisis
With so many unknowns, and in a situation where past events have little correlation to what may happen in the future, organisations should be looking much more at a risk containment strategy during this pandemic. Doing so will allow them to keep moving forward more effectively and minimise the threat posed to their business by coronavirus.
This approach entails several key elements, which include:
Deployment of multiple scenarios
given the difficulty in predicting the exact timeline for the crisis or how different industries will respond, it is clear that risk mapping needs to be based on many multiple scenarios to effectively contain any risk.
Focus on cash-flow modelling
one of the greatest unknows of this crisis is the effect on an organisation’s cash-flow. Companies need to generate enough cash to withstand a prolonged crisis, so the need for effective cash-flow modelling is stark.
Remain alert and agile to opportunities
in among the vast risk created by coronavirus, there will different opportunities too. Organisations need to remain alert to such opportunity and be proactive about maximising them, and risk mapping will play an important role in their identification.
While coronavirus undoubtedly poses challenges to risk models, the use of risk mapping within enterprise risk management software has a prominent role to play in the crisis. Risk mapping is a central component of Oxial’s sGRC solution and can help organisations contain and manage risk much more effectively in this period.
For further details on how Oxial can help manage risk during coronavirus and beyond, please contact our risk management team here.
