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  • Julien Haye

How to Develop an Emerging Risk Framework

A step-by-step guide for the effective implementation of an emerging risk frameowork

What are the top 5 emerging trends that will reshape your organisation’s future?

Identifying these new and unpredictable challenges that your organisation hasn't faced before is crucial for strategic planning and risk management, helping you to navigate a complex and unpredictable global landscape. These emerging challenges, often unprecedented and unpredictable, necessitate a readiness to adapt and innovate, ensuring your organisation can not only sustain growth but also capitalise on the opportunities presented by market and societal shifts.

 

Yet, how many organisations are truly prepared to adapt to and future-proof against these emerging changes? In my experience, not many! This is often due to a lack of advanced capabilities that can anticipate and tackle the unpredictable nature of emerging threats and opportunities. In a world where technology, regulations, and market dynamics evolve rapidly, traditional risk management methods fall short. The consequence? Many commercial and non-profit organisations risk being outpaced by more agile competitors, potentially missing out on critical opportunities for growth and innovation. As businesses like Kodak and Nokia learnt the hard way, this can be nearly fatal!

 

So, I aim to provide you with a structured approach towards developing an Emerging Risk Framework. Such a framework is indispensable for organisations intent on proactively identifying the top emerging developments poised to impact their operations. By implementing the strategic and operational management principles outlined in this guide, you can enhance your organisation’s resilience, stimulate innovation, and secure a competitive edge. This guide will equip you with the knowledge and steps necessary to build a robust Emerging Risk Framework tailored to your organisation’s needs.

 

This article is an instalment of a series on Aevitium’s Integrated Risk Framework, which is designed to unlock both strategic and operational management of risks, driving value creation, effective risk-taking and optimisation of risk resources across your organisation. This modular approach delivers ambitious yet targeted solutions, fostering critical thinking and guiding your people through a transformative journey.

 

Ready to take your risk management the next level? Contact me now or reach out via email at julienhaye@aevitium.com.

 

Table of content:


Executive Summary

 

Emerging risks, characterised by their novelty and unpredictability, arise from a multitude of sources including technological breakthroughs, regulatory shifts, environmental changes, and geopolitical dynamics. Traditional risk management methodologies, while foundational, are increasingly inadequate in addressing the complexities and velocities of these risks.

 

This article presents a detailed guide on developing an Emerging Risk Framework, a critical tool for organisations aiming to navigate the uncertainties of the modern business landscape effectively. It underscores the necessity of such a framework, detailing a step-by-step approach for its effective implementation. From securing executive buy-in and establishing leadership to integrating the framework into organisational processes and continuously improving it, the guide provides actionable insights and practical strategies.

 

Moreover, through a series of illustrative case studies, the article showcases successful implementations across various industries, demonstrating the tangible benefits of adopting a proactive and structured approach to emerging risk management. These examples highlight how organisations can not only mitigate potential threats but also seize opportunities for innovation and strategic growth.

 

The need for an Emerging Risk Framework is underscored by a critical observation: many organisations exhibit varying levels of maturity in managing emerging risks, often underestimating their potential impact. This guide aims to bridge this gap, offering ambitious yet targeted solutions that drive value creation, optimise risk resources, and foster a culture of effective risk-taking.

 

In essence, this article serves as an indispensable blueprint for leaders dedicated to steering their organisations towards resilience and success in an uncertain world. It encourages readers to take a proactive stance on emerging risks, engaging with a wide range of stakeholders to gather diverse perspectives and insights, thereby enhancing their preparedness and strategic agility.

 

For organisations ready to elevate their risk management capabilities, this guide offers a comprehensive pathway to developing and implementing an Emerging Risk Framework, positioning them to confidently face the challenges and opportunities of the 21st century.



Why do you Need an Emerging Risk Framework?

 

Navigating the uncertainties of emerging risks without a comprehensive framework is like sailing through uncharted waters without a compass. An Emerging Risk Framework provides organisations with the tools and methodologies needed to systematically identify, assess, and respond to these risks. It helps businesses stay ahead of the curve by anticipating changes, adapting strategies accordingly, and mitigating potential threats before they materialise. Implementing such a framework is essential for fostering innovation, enhancing resilience, and securing a competitive advantage in today's rapidly changing world.

 

Here's a breakdown of the key reasons for having such a framework:

Systematic Identification of Risks

This involves having a structured process to detect and recognise new risks that could impact the organisation. In the absence of a systematic approach, emerging risks might go unnoticed until they have already caused significant damage. A framework ensures that risks are identified early, giving organisations more time to prepare and respond.

Comprehensive Risk Assessment

Strategic Response and Mitigation

Staying Ahead of the Curve

Fostering Innovation

Enhancing Organisational Resilience

Securing Competitive Advantage


Case Studies of Successful Implementation


Case Study 1: Financial Services – Cybersecurity Risk

  • Situation: A leading global bank recognised the emerging risk of cyber-threats, that is threats to its online information and systems, particularly as digital banking services expanded. Recognising the potential for significant financial and reputational damage, the bank sought to proactively address this challenge.

  • Action: The bank implemented a comprehensive cybersecurity risk framework that included advanced threat detection systems, regular security assessments, and employee training programs on cybersecurity best practices. They also established a rapid response team to address any security breaches immediately.

  • Outcome: By prioritising cybersecurity, the bank not only protected its assets and customer data but also strengthened customer trust in its digital services. This proactive stance allowed it to outperform competitors in digital banking security and resilience.

Case Study 2: Retail - E-Commerce and Supply Chain Disruption

Case Study 3: Healthcare - Tele-health Adoption

Case Study 4: Energy Sector - Transition to Renewables


What is an Emerging Risk?

 

Emerging risks are analogous to unexplored regions on a navigational guide, embodying both potential detriments and prospects that are largely unidentified or insufficiently understood due to their recent emergence or intricate characteristics. These risks emanate from an extensive array of origins, contributing to their complexity and the challenges in forecasting their impact.

 

Here is an analytical breakdown of their fundamental components:

Sources of Emerging Risks

  • Technological Innovations: This refers to the latest advancements in technology that transform the way we live, work, and interact. For example, artificial intelligence (AI) is a technological innovation that can automate tasks previously done by humans, offering both opportunities for efficiency and challenges in job displacement and data security.

  • Regulatory Developments: These are changes or new introductions in laws and regulations that organisations must comply with. An example of regulatory development is the introduction of stricter data protection laws that require businesses to safeguard the personal information of their customers more rigorously.

  • Geopolitical Dynamics: This term refers to the way political actions and relationships between countries influence the global and local economic environment. For instance, a trade agreement between two countries might open new markets for businesses or, conversely, a trade war could impose tariffs that make it more expensive to import certain materials.

Attributes of Emerging Risks

Management Strategies


Emerging risks pose a challenge to traditional risk management frameworks due to their inherent uncertainty and complexity. Nonetheless, by delineating their fundamental components and adopting a proactive, flexible management approach, organisations can enhance their preparedness for these uncertainties. This enables the transformation of potential challenges into strategic opportunities for innovation and competitive differentiation.


When is an Emerging Risk Framework Required?

 

An Emerging Risk Framework becomes essential in several scenarios, reflecting the need for organisations to adapt and respond to the rapidly changing risk landscape. Here are key situations when implementing such a framework is particularly required:

Rapid Technological Advancements

When an organisation operates in or is entering sectors characterised by rapid technological changes, such as fintech, biotech, or digital services, the pace of innovation can introduce new risks that were previously unimagined.

 

  • Example: A leading automotive manufacturer develops an Emerging Risk Framework to address risks associated with the transition to electric vehicles (EVs), including battery technology innovations and changing consumer preferences towards sustainable transportation.

Global Expansion

Regulatory Changes

Increasing Environmental Concerns

Market’s Volatility and Economic Uncertainty

High-Profile Data Breaches or Cybersecurity Threats

Changes in Consumer Behaviour

Supply Chain Complexities

Crisis and Disaster Recovery

Industry Disruption

In essence, an Emerging Risk Framework is required whenever an organisation must navigate uncertainty, respond to rapid changes in its external environment, or seeks to maintain a competitive edge by being proactive rather than reactive in its risk management practices. It provides a structured approach to identifying, assessing, and managing risks that are uncertain but could have significant implications for the organisation's strategic objectives and operational resilience.


How to Develop an Emerging Risk Framework?

 

Implementing an Emerging Risk Framework from scratch involves establishing foundational elements, processes, and practices within an organisation to systematically identify, assess, and manage risks that have not yet fully materialised or are not well understood. Here are the steps to develop an emerging risk framework in an organisation that lacks one:

Step 1: Gain Executive Buy-in and Establish Leadership

  • Secure commitment from top management by demonstrating the value of an Emerging Risk Framework in safeguarding and enhancing competitive advantage. You can leverage the information enclosed in this article to build your business case.

  • Appoint a risk management leader or team responsible for the development and implementation of the framework. This could be a Chief Risk Officer (CRO) or equivalent position if such role does not already exist.

Step 2: Define the Framework's Scope and Objectives

Step 3: Develop a Risk Identification Process

Step 4: Create Risk Assessment Criteria

Step 5: Design Risk Response Strategies

Step 6: Integrate into Organisational Processes

Step 7: Monitor, Review, and Report

Step 8: Continuously Improve

 

 

Implementing an Emerging Risk Framework is a dynamic and iterative process that requires commitment across the organisation. By following these steps, an organisation can establish a robust framework capable of identifying and managing emerging risks proactively, thereby enhancing its resilience and strategic agility.

 

In a world characterised by rapid change and uncertainty, the ability to manage emerging risks effectively is more important than ever. By developing and implementing a comprehensive Emerging Risk Framework, organisations can not only protect themselves against potential threats but also seize new opportunities that arise from these uncertainties. This proactive approach to risk management is essential for driving innovation, enhancing resilience, and securing sustainable success in the modern business environment.

 

It's time to take a proactive stance on emerging risks. Begin by conducting a thorough review of your current risk management practices, with a focus on identifying gaps in your approach to emerging risks. Engage with a wide range of stakeholders to gather diverse perspectives and insights. Remember, in the dynamic landscape of emerging risks, staying informed, agile, and prepared is the key to navigating the challenges and opportunities ahead.


 

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