With the rise of digitisation and increased global connectivity, risks have become more complex and diverse, and risk management has had to adapt accordingly. Risk management has undergone significant changes in the past decade as the industry has evolved to keep pace with technological advances and changing economic landscapes. From the use of advanced analytics and machine learning algorithms to the growing importance of cybersecurity, risk management has become a critical function for organisations across industries.
The rise of digitisation, growing concerns for environmental, social and governance (ESG) risk management, the increasing use of machine learning and artificial intelligence, and the prominence of enterprise risk management have prompted organisations over the last decade to deal with an indiscriminate spike in ransomware attacks, rising frequency of security breaches and other innate elements that impact the operational strategies of the organisation. The surge in cyber-attacks has also led to a major focus on resilience and business continuity. These incidents around the world continue to rule the news and boardrooms.
As the gaps between these problems continue to close, a hybrid, proactive and comprehensive strategy to these threats has become the need of the hour. Below are some of the factors that have changed the landscape of risk management over the years.
Rise of Digitisation: A Major Focus on Cyber Security Risk Management
One of the most significant changes in risk management is the increasing use of technology. With the rapid pace of digitisation, businesses have become increasingly vulnerable to cyber-attacks, making cybersecurity a critical area of risk management for every business. The use of mobile devices, cloud computing, and the Internet of Things (IoT) has increased the attack surface for businesses, as a result of which businesses have started emphasising cybersecurity risk management, including regular vulnerability assessments, penetration testing, and incident response planning.
India witnessed 13.91 Lakh cyber security incidents in 2022, said Rajeev Chandrasekhar, Minister of State for Electronics and Information and Technology. Furthermore, India’s share in total cyberattacks on government agencies rose to 13.7% in 2022 from 6.3% in 2021.
Cybersecurity threats are becoming increasingly sophisticated, compelling businesses to invest heavily in cybersecurity measures to protect themselves. The adoption of cybersecurity frameworks, such as the National Institute of Standards and Technology (NIST) Cybersecurity Framework, has become common practice for many organisations.
Switching Sides with Machine Learning and Artificial Intelligence
The use of machine learning and artificial intelligence (AI) has transformed the risk management industry. These technologies enable companies with the proliferation of data in today’s digital world, allowing businesses to collect and analyse vast amounts of information about their operations, customers and the market in general. This data can be used to identify risks and opportunities, optimise processes, and make more informed decisions. The use of analytics has transformed the way risk management is approached. Risk managers no longer rely on manual processes and intuition but can now leverage advanced data analytics tools to identify risks and trends in real-time.
The Impact of Regulatory Changes
The past decade has seen a significant increase in regulatory scrutiny across various industries. This has led to increased compliance costs and the need for businesses to adopt more robust risk management practices. Regulatory changes have also increased the need for businesses to be transparent in their operations and to demonstrate that they are managing risks effectively. For example, the introduction of the General Data Protection Regulation (GDPR) in Europe has led to an increased focus on data protection and cybersecurity. Businesses are now required to have robust data protection measures in place to comply with GDPR, which has led to increased investment in cybersecurity tools and technologies.
Growing Concerns for ESG Risk Management
With the increasing focus on sustainable development, companies are expected to consider the environmental and social impact of their operations. In addition, investors are increasingly interested in ESG factors as they evaluate investment opportunities. Companies are now required to disclose their ESG practices to their stakeholders, and regulators have introduced guidelines and regulations to ensure ESG compliance. ESG risk management has become an integral part of corporate risk management, requiring companies to evaluate their operations and supply chain from an ESG perspective.
Enterprise Risk Management Gains Prominence
Enterprise risk management (ERM) has become a critical component of corporate governance. ERM enables companies to identify, assess, and manage risks across their entire organisation. The adoption of ERM frameworks, such as the ISO 31000 standard, has become more widespread. Companies are now expected to have a comprehensive risk management program that includes risk identification, risk assessment, risk mitigation, and risk monitoring. ERM also involves integrating risk management into strategic decision-making, ensuring risks are considered when making important business decisions.
As the business landscape continues to evolve, it is essential for companies to remain vigilant and adapt to new risks and challenges. A robust and comprehensive risk management program can help companies mitigate risks, enhance their decision-making capabilities, and ensure business continuity in the face of disruption.