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  • Julien Haye

How to Scope an Emerging Risk Framework

A framework to scope your approach to emerging risk management

In today's rapidly evolving global landscape, the ability to effectively manage emerging risks distinguishes industry leaders from the rest. These risks, unpredictable by nature, pose significant threats to an organisation's operational integrity, reputation, and financial stability. This guide provides you with the process of scoping an emerging risk framework, detailing a strategic roadmap to embed such assessment tool into your risk management strategy to strengthen your organisation's resilience and maintain a competitive edge.

 


What Functional Areas to Cover in your Emerging Risk Framework

 

Initiating the journey requires a deep dive into your organisation's core sectors, identifying those pivotal to your operational success and strategic ambitions. These include:

 

  • Operations and production

  • Supply chain and logistics

  • Research and development

  • Sales and marketing

  • Information technology

  • Human resources

  • Finance and accounting

Understanding these areas helps determine where to focus your risk identification and assessment efforts is essential to establish an emerging risk framework. Download our horizon scanning guide to discover cutting-edge techniques for spotting emerging risks and bolster your risk identification techniques.

 

Example: Tesla, Inc. Tesla’s approach to integrating risk management into its core business areas, especially in operations and research and development, exemplifies proactive risk identification. By closely monitoring technological advancements and market trends, Tesla identifies risks and opportunities in electric vehicle (EV) technology and autonomous driving features, ensuring they remain at the forefront of innovation while managing potential risks.


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What Risk Types to include in your Emerging Risk Framework

 

Specify the types of risks that the framework will address. Emerging risks can be broadly categorised into:

 

  • Technological Risks: Including cybersecurity threats, data breaches, and the impact of new technologies.

  • Market and Economic Risks: Such as shifts in consumer behaviour, market disruption, and economic downturns.

  • Regulatory and Compliance Risks: Involving changes in laws, regulations, and industry standards.

  • Environmental and Climate Risks: Related to climate change, natural disasters, and sustainability challenges.

  • Social and Geopolitical Risks: Including political instability, social unrest, and changes in public policy.

  • Operational Risks: Related to internal processes, systems, and human factors.

 

Case Study: IBM’s Cybersecurity Initiatives IBM highlights how addressing technological risks through a dedicated cybersecurity command centre not only protects data but also advises on risk management. This proactive stance on digital risk management strategies showcases the importance of tailoring the emerging risk framework to include specific risk types relevant to the business.


Assess Risk Appetite and Tolerance to Strengthen your Risk Management Strategy

 

Understanding your organisation's risk appetite and tolerance is crucial to establish a shared vision and more cohesive approach to managing emerging risks across your organisation. This process involves engaging with senior management to align risk-taking with strategic objectives.

 

  • Engaging with senior management and key stakeholders to understand their perspectives on risk-taking and avoidance. Such approach is about fostering a culture of open dialogue and shared understanding regarding risks leading to better strategic alignment, enhanced decision making and improved risk culture.

  • Establishing criteria for acceptable levels of risk in different areas of the organisation.

 

Example: JPMorgan Chase & Co. post-2008 financial crisis, engaged senior management to review and set clear thresholds for financial risks, aligning risk-taking activities with strategic goals. By setting clear thresholds for different types of financial risks, the bank ensured that its risk-taking activities were aligned with strategic objectives, demonstrating the critical role of senior management engagement in risk assessment.


Consider External and Internal Factors

 

Consider both external and internal factors that could influence the scope:

 

  • External Factors: Include industry trends, technological advancements, and global economic conditions.

  • Internal Factors: Consider the organisation's strategic objectives, operational capabilities, and existing risk management practices.

Determine Integration Points

 

Determining how the emerging risk framework will mesh with existing processes is crucial for a seamless risk management approach:

 

  • Aligning with strategic planning cycles.

  • Coordinating with existing risk management activities to ensure a holistic approach.


Set Prioritisation Criteria

 

Formulating a system for risk prioritisation within the framework's scope is necessary, considering:

 

  • Potential impact on the organisation's strategic goals.

  • Likelihood and velocity of risks materialising.

  • Capacity of the organisation to respond to and mitigate risks.


Review and Update Scope Regularly

 

The scope of your emerging risk framework is not fixed; periodic evaluations are key to adaptability, ensuring the framework evolves in line with new insights, changing conditions, and strategic shifts.


Leveraging Technology for Enhanced Risk Management

 

Technology is a cornerstone in evolving risk identification, assessment, and monitoring. Utilise advanced analytics, AI, and machine learning to gain deep insights into potential risks and trends, facilitating swift and effective organisational responses. Digital platforms can also bolster collaboration and ensure a cohesive risk management strategy.

 

Case Study: Amazon Web Services (AWS) Amazon Web Services (AWS) leverages advanced analytics and machine learning to enhance its risk management processes and to predict potential service disruptions and security vulnerabilities, enabling proactive risk mitigation strategies.


 

 

Scoping an emerging risk framework is foundational in strategic planning and organisational resilience. By identifying, assessing, prioritising, and adapting to risks with agility, your organisation can protect its interests and explore new avenues for growth. Embrace technology to bolster your risk management capabilities, navigating the complexities of today's business environment with confidence.

 

Discover how to future-proof your organisation against emerging risks by scheduling a free consultation with our risk management experts today. Equip your organisation with the knowledge and tools to thrive in an unpredictable world.

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