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GLOBAL RISK LANDSCAPE 2021
GLOBAL RISK LANDSCAPE 2021 25
EMBRACING FUTURE RISK Organizations that plan for and manage risk will be the winners in a post-COVID economy, no matter what the future holds
period must now be recalculated to tackle a completely different set of concerns.
Which risks is your company least prepared for? How the top three have changed year on year
“New conditions require new approaches,” warned former US Treasury Secretary Lawrence Summers in a Washington Post op-ed. “Now, the primary risk to the US economy is overheating — and inflation.” Conversely, risks that have lost some of their urgency in recent years can easily make a dramatic and sudden comeback. The Ever Given accident at the Suez Canal and the continuing semiconductor shortage of 2021 will likely catapult supply chain and business interruption issues up a few notches in internal risk mapping. A growing number of successful ransomware attacks against governments and multinational groups may also add some extra urgency to tackling cyber risks. Ricky Cheng, head of Risk Advisory at BDO Hong Kong, explains that risk and uncertainty go hand in hand and a good risk management strategy accepts this. “The post-COVID economy is still full of economic uncertainties,” says Cheng. “Some organizations may be thinking of expanding their business during this initial stage of recovery – but management should be mindful of over-optimistic planning. “There is still a long way to go before the economy returns to its pre-COVID level. Businesses can manage this by always having a reservation strategy – then they can take an optimistic stance when making business decisions”. Agile, robust risk management is essential for companies doing business today. Risks are not static, and most fade in and out of focus year on year – yet rarely disappear altogether. Identifying the most urgent risks, without losing sight of those that could create new challenges in the future, is a laborious task, but its benefits match the necessary investments in talent and technology. The pandemic has taught us companies that make a sustained effort in identifying and managing risks are better prepared to face such unusual situations than their risk-averse, or even risk-ignoring, counterparts. Companies that can truly say they embrace risk will be well prepared for the challenges of the future, no matter how catastrophic they may be.
2019 2020 2021
27% 34% 35% 34% 33% 20% 27% 29% 19% 37% 30% 41% 19% 18% 35% 14% 12% 30% 22% 23% 30% 26% 23% 25% 22% 30% 15% 28% 28% 13% 8% 14% 13% 13% 12% 12%
Business interruption
Capital/ funding
Computer crime/ hacking/viruses
Damage to reputation/ brand value
Nobody can predict exactly what business environment will be left behind after the pandemic – but it is certain that risks faced by companies will continue to evolve. COVID-19 represented an extreme case of economic disruption, and our survey shows that it has brought major risks to the top of C-suite agendas. Four in ten respondents listed the risk of a slow economic recovery among their main worries. Increased competition and macroeconomic developments were cited by around one third. This represents a significant increase on 2020, when the same cross-section of respondents were interviewed just as the pandemic was spreading across the world. On the other side of the coin, the risks that worried business leaders two years ago look less frightening today. Access to funding, computer hacking and business interruption all dropped considerably in our ranking. It is not surprising, as governments and businesses turn their attention from the immediate impact of COVID-19 and to the
potential longer-term implications, that C-suites across all industries are wary of any more big risks hovering on the horizon.
is optimistic about future opportunities, particularly around government support.
Economic slowdown/ slow recovery
“We remain positive and will need to continue making quick decisions,” says a spokesperson for Radisson Hotel Group. “We cannot underestimate the power of the public and private sector coming together to help to rebuild the hospitality industry. We are already seeing positive signs with the Digital Green Certificate proposed by the European Commission which is a major step towards recovery”. Similar strategies to turn risk into opportunity are happening worldwide. In Asia, whole sectors like retail, education and healthcare are going through a process of automation that has been accelerated by COVID-19. In South America, traditional retailers have invested heavily to pump up their online sales channels and counter an army of start-up challengers. Brazilian company Via Varejo’s pioneering sales service means consumers can now purchase a fridge via WhatsApp, while Chile’s Cenconsud saw online sales increase fourfold after adapting its digital business to pandemic-driven trends.
TURNING RISK INTO OPPORTUNITY
Environmental
Leaders must keep in mind the impressive displays of agility and flexibility that businesses have shown during the pandemic. Such change inevitably creates macro opportunities, alongside macro risks. In Europe, for example, governments are using recovery money to address old issues that have hampered productivity and job creation in the region for decades. Spain, which will receive $140 billion until 2026, has listed among its priorities the production of connected and electric cars, the digitalization of the tourism industry and the boosting of research on artificial intelligence. Italy intends to use its $205-billion investment to implement badly needed reforms in areas like the tax system, judiciary and anti-trust laws. “We need to transform our economies as structural changes speed up around us,” said Christine Lagarde, head of the European Central Bank, during a conference in May 2021. “We must redirect activity towards the green and digital sectors as quickly as possible, which will help raise Europe’s growth potential.”
Failure to innovate/ meet customer needs
Geopolitical
Increasing competition
Macroeconomic developments
People
Regulatory risk
TWO SIDES OF THE SAME COIN
9% 7% 5%
Management should
Risk and opportunity can switch places, fast. In the United States, the slow economic recovery that is worrying business leaders is quickly giving way to economic growth. As a result, contingency plans implemented to help companies tread water during a sluggish
Supply chain
be mindful of over- optimistic planning
14% 7% 7%
Technological changes/ development
Even the hospitality sector, which struggled more than many during the pandemic,
RICKY CHENG, BDO HONG KONG
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