When considering risk, the rhetoric is often around prevention. How could we have prevented the financial collapse of 2008? Or the widespread disruption caused by COVID-19? Naturally, risk assessment is all about preventing and managing risk. However, when we talk about "prevention," the connotations are of defensiveness, of being on the back foot. There is often a feeling of "How can we survive these risks?" Instead, we should focus on how businesses can leverage risk and risk assessment to gain a competitive advantage.
I caught up with our SAS Collaborators, a collection of top tech influencers, to discuss this very topic. We talked about what businesses need to do if they are not just going to fend off risks but turn them to their own advantage. The key, as is increasingly becoming the case in the modern world, is technology and, specifically, AI and analytics.
Make or break moments
For businesses, disruption is becoming a focal part of daily life. There is, of course, huge variation in the types of disruption that companies can face. One day it could be something predictable and regional, like poor weather. And then the next it could be something unprecedented and with global ramifications – as we have seen with COVID-19.
While smaller disruptions are more frequent, the larger ones can represent make-or-break moments for businesses. Brands such as Victoria’s Secret, Debenhams and Cath Kidston, once household names on the high street, have all gone into administration as a result of the pandemic. This is by no means a one-off occurrence. During the financial crisis of 2008, Lehman Brothers went under as well, sending shock waves through the world of finance.
We cannot wholly attribute the collapse of these companies to poor risk management practices. There may have been underlying issues which were exacerbated by severe disruption. However, with more effective risk management solutions, these businesses would have stood a better chance of reacting and making it through the turbulence.
Preparation is key
For some, effective risk management might well have been the difference between survival and going under. However, as one of our Collaborators, Bill Mew, mentioned, risk management does not purely have to be about survival. Instead, businesses that prepare for these disruptions can ride the wave, leaving unprepared businesses in their wake.
One industry where this has been clear during COVID-19 is retail. At the beginning of lockdown in the UK, the high street was forced to close its doors in an effort to control the spread of infection. For some businesses, such as Primark, this temporarily resulted in a drop of sales to zero. This was because, without an e-commerce platform, it had no contingency plan to lean on; it wasn’t prepared for the worst-case scenario.
Meanwhile, those retailers with a strong e-commerce platform could target the market share temporarily given up by businesses such as Primark. As another of our Collaborators, Peter Lavers, suggested, this reliability during difficult moments could earn businesses repeat business from customers moving forward, as well.
For big and small businesses alike, history has proven the benefits of having an effective risk management strategy. The only real question businesses should be considering is how they can have the most effective strategy possible. The answer lies in how they use their data.
A data with destiny
In the world we live in, disruptions are inevitable. Whether it’s geopolitical tensions, such as trade wars, climate change or something completely unforeseen, such as COVID-19, the next disruption is always just around the corner. As a result, businesses must be ready at all times.
With expected disruptions, it is easier for businesses to prepare. These would include seasonal spikes in demand, such as during the Christmas period, forecasted weather disruptions and, to a degree, Brexit. These are all events that, at some point, we can expect to take place. Or at least those we can anticipate and plan for. As a result, businesses will have data directly relevant to these events, which they can analyse using data analytics and AI to create accurate, actionable insights to get them through the disruption.
However, planning becomes more difficult when a "black swan" event hits. We could put COVID-19 in this category because it came without warning and little historical precedent. As a result, businesses were caught unawares and without directly relevant historical data with which to combat the disruption.
The importance of flexibility
In this scenario, it’s vital that businesses are agile and flexible. This stems from having an anti-fragile risk management strategy. Using the analogy of a ball, this would mean that the system is not comparable to a bowling ball or a glass ball, which would both end in damage if dropped. Instead, it must be analogous to a basketball: something that is flexible, adaptable and which can absorb impact.
From a risk management point of view, the way to achieve this is by having a bedrock of AI-driven analytics and feeding your algorithms as much relevant data as possible. The more information they have to learn from, the better. Naturally, this will not allow you to predict global pandemics or financial collapses. However, it will allow you to generate insights based on the possibility of these worst-case-scenario events. This will enable businesses to create multiple contingency plans for if and when the worst happens.
Generating insights with analytics
To achieve this, businesses need access to all of the data at their disposal. And for speed and efficiency, it should be accessible from one place, rather than siloed across multiple environments. One solution would be to integrate different data sites using an interconnected cloud platform. With all the information in one place, businesses can use cloud-based analytics (which powers the necessary AI models to create an anti-fragile system) to analyse the data in its entirety. This is how businesses will generate the insights they need not only to survive disruptions but to thrive during them.
Ultimately, when things are going well, it’s easy to lose sight of the fact that disruption can strike at any moment. And when it does, if your business isn’t prepared, it could lead to serious financial consequences. As a result, it’s vital that businesses are prepared for the unexpected at all times. Having anti-fragile risk management systems in place, powered by AI and analytics, is key to this. This will not only help businesses navigate their way through a tumultuous world but accelerate beyond their competitors in the process.