NEW YORK, April 13, 2016 /PRNewswire/ -- Strategic risks are the risks most likely to take value out of market capitalization and crush shareholder value. Yet, an in-depth global survey Deloitte conducted with Forbes Insights titled, "Risk sensing: the (evolving) state of the art," indicates fewer companies apply risk-sensing tools and capabilities to detect emerging strategic risks – than other types of corporate risks.
Fortunately, companies today now have more options to identify emerging trends and fundamental threats to their businesses. According to a recent Deloitte Advisory poll, 27 percent of more than 3,300 respondents report that their organizations are maturing when it comes to risk sensing, having developed some set of possible future scenarios and outcomes, and developed mitigation strategies based on identified strategic risks.
The intersection of analytical technologies and data sources offers the capability to analyze and monitor strategic risks and is, according to Deloitte, helping senior leaders navigate the complex and volatile business environment of the 21st century.
Risk sensing capabilities may include real-time reporting, monitoring big data, increasing the signal-to-noise ratio, taking an outside-in perspective or integrating operational insights into a company's daily business processes, all of which have the ability to enhance an organization's understanding of the risk/reward tradeoffs inherent in value creation. Risk sensing can improve things such as moving more timely and decisively, perhaps enabling first-mover advantage, more targeted investment decisions and better allocation of resources.
"The technology is maturing quickly, and while there's lots of room to grow, organizations that embrace this capability will have an advantage in the coming business environment," said Andrew Blau, managing director of strategic risk solutions, Deloitte Advisory. "Risk sensing presents a huge opportunity to unearth value. Understanding how and where to apply resources is the secret sauce to identifying and preparing for your most critical risks."
The survey reinforces — in keeping with Deloitte's experience — that current risk sensing capabilities often:
- Lack technical depth and analytical sophistication
- Reside in narrow technical units
- Fail to focus broadly enough and therefore miss key issues that could become risks
All of which leave an organization open to the very risks that risk sensing should be detecting and monitoring. Moreover, when done correctly, sensing emerging strategic risks can position an organization to capitalize on risk.
Through a combination of human insights and advanced analytics capabilities, risk sensing tools aim to identify, analyze and monitor the most critical emerging risks to an organization's business model, long-term viability, and ability to create value. Risk sensing tools include not only data scanning and monitoring, but measurement, analytical, and visualization tools to enable timely decision making.
"Many companies focus on visualizations, dashboards and analyses of historic trends in internal data. However, few use pattern analysis, scenario analysis, or other complex analytics, such as rare-event analysis and consider risk-interrelatedness, or set clear thresholds to monitor risk over time and trigger early warning signals," added Evelyn Heinbach, director, and risk sensing leader for Deloitte Advisory's strategic risk solutions practice. "And don't forget the humans. Investment in resources with expertise in data analytics and industry subject matter knowledge is critical. It often is the missing piece for companies to identify required data, correct for cognitive biases, and focus on generating relevant strategic insights to navigate strategy execution risk."
When employing risk sensing in an organization, Deloitte recommends following these four leading practices:
- Identify the primary strategic objectives and assumptions of the organization that if disrupted could undermine value creation or exceed the organization's risk appetite.
- Elevate risk sensing from a narrowly focused tactical use to the level of a true program, covering mission-critical risks to the organization and integrating risk sensing with risk management and governance – with a direct line to the CEO and board.
- Continue monitoring critical risks and thresholds to generate ongoing insights and incorporate the findings into the ongoing senior leadership oversight process, as well as business and strategic plans.
- Establish a strong team of data and business analysts that will proactively provide insights and raise strategic issues facing the organization, its business units, and functions to enable forward-looking risk management and strategy adaptation.
Blau concluded, "Risk sensing has to evolve as the risk environment for businesses evolves. Companies that do it well will gain competitive advantage and be better equipped to navigate the economic, technological and regulatory changes on the horizon."
About the online poll
Over 3,500 professionals participated in a Deloitte webcast, "Risk sensing: The evolving state of the art," on Feb. 10, 2016. Poll respondents work across industries, including banking and securities (17.2 percent); technology (6.3 percent); investment management (6.3 percent); and retail and distribution (5.7 percent).
About the survey
To assess the state of risk sensing in large organizations, Forbes Insights, on behalf of Deloitte Touche Tohmatsu Limited, conducted a survey of 155 executives from companies representing every major industry and geographic region. The survey, conducted in May and June of 2015, targeted companies with revenue of at least US$1 billion.
About Deloitte Advisory
Deloitte Advisory helps organizations turn critical and complex business issues into opportunities for growth, resilience and long-term advantage. Our market-leading teams help our clients manage strategic, financial, operational, technological, and regulatory risk to maximize enterprise value, while our experience in mergers and acquisitions, fraud, litigation, and reorganizations helps clients move forward with confidence.
As used in this document, "Deloitte" means Deloitte & Touche LLP, which provides audit and enterprise risk services; Deloitte Financial Advisory Services LLP, which provides forensic, dispute, and other consulting services; and its affiliate, Deloitte Transactions and Business Analytics LLP, which provides a wide range of advisory and analytics services. Deloitte Transactions and Business Analytics LLP is not a certified public accounting firm. These entities are separate subsidiaries of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.
SOURCE Deloitte Advisory