Bottom line threat
Billions of dollars worth of revenue from Australian business could be under threat from out of date enterprise risk management (ERM) practices. While the Australian financial services industry is waking up to the competitive advantage of implementing ERM practices, actuaries think more work needs to be done in making businesses resilient and adaptable to external threats. These could include the pace of technological change, the impact of climate change and the rise in the power of the consumer, all of which could lead to hefty company losses if not managed appropriately.
Joshua Corrigan, chair of the Institute’s Risk Management Practice Committee, explained that resilience is about ensuring organisations are adaptable in an ever-changing environment, so that companies can remain in the game and competitive when others are falling by the wayside.
“Businesses fail all the time because they are not resilient; they don’t adapt and don’t have the robustness to deal with downturns. Having a proper ERM framework and thinking about embedding resilience is going to become a source of significant competitive advantage,” said Mr. Corrigan.
According to Mr. Corrigan, corporate Australia needs the next evolution of ERM, a phase he has dubbed ERM 3.0, to truly succeed in the future. The first phase was all about assessing basic sensitivity levels of outcomes such as profitability to risk drivers, which was highly quantitative in nature. The second phase is all about aggregating the various types of risks to try to predict what they mean at the enterprise level. The third phase, which the financial services industry is increasingly moving into, is all about understanding and explaining uncertainty holistically and how it relates to enterprise strategy.
“People now have a greater understand- ing of risk and we now also have the tools, techniques, systems, and processes for dealing with complex enterprise risk problems which we didn’t have before. Those organisations that embrace these are more likely to not only protect themselves against significant risk events, but also derive competitive advantages through more sustainable performance.”