Bot­tom line threat

Business First - - NEWS -

Bil­lions of dol­lars worth of rev­enue from Aus­tralian busi­ness could be un­der threat from out of date en­ter­prise risk man­age­ment (ERM) prac­tices.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.”

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