As organizations worldwide look to scale up, there is a rising need to adopt digitization to remain competitive. There are several risks associated with executing transformation initiatives. With technology playing a prominent role in an organization, the digital risks associated with it will also be greater.
Digital risks are a result of a company’s reliance on technology. A company is more exposed to the adverse effects of digital transformation the more dependent it is on it. Even while industries and companies attempt to assess digital risks, some hurdles are universally dominating.
Here are a few roadblocks businesses should consider:
The Challenge of Quantifying Risks
One of the main obstacles to risk assessment is the quantification of digital risks. This barrier often applies to qualitative digital risks. The expert’s assessment of digital risks is not always accurate. The quantification of digital risk by experts is likely to be biased. In this instance, bias results from the assessment of only some selective elements that contribute to a qualitative risk.
Consider the lack of digital proficiency in the workforce as an example. This is a qualitative risk that depends on a variety of variables, including the level of education, work experience, and among others. It is challenging to quantify the risk of inadequate digital literacy. Experts in the field of quantification might view the experience as the only valid metric.
Because of the reliance on historical data, quantifying digital risks is extremely difficult. Reliance on historical data presents a challenge because the factor causing a trend may have changed entirely.
Absence of Strategic Partnerships
It takes a team to assess digital risks. It is necessary for input from all stakeholders when deciding how to handle identified digital risks. Ignoring any of these stakeholders during risk assessment raises the likelihood that the best risk management plan will not be chosen.
In cases where there isn’t a risk assessment advisory committee, a strategic alliance is a common obstacle. This happens when owners of risk in a company fail to acknowledge risk as a functional area. Without the advisory council, the formal aspect of risk assessment would be disregarded, allowing for inconsistencies. It prevents the proper determination of which digital risks can be tolerated and which risks should be handled through insurance.
Differences in the Definition of Risks
Even though it seems straightforward, it remains a major obstacle to digital risk assessment. The difficulty in defining digital risks is due to different perspectives on the context of those concerns. Stakeholders could accept the same risks in digital risk assessment but from a different context. For instance, when defining digital financial risk, some stakeholders may limit themselves to the context of their clients, while others may assume the context of their business partners.
Stakeholders are hindered from evaluating a digital risk by these differences in the definition of the risk context. Digital risk assessment is further hampered by the perceptions of risk definition. Some parties involved might view risk definition as a prerequisite for risk treatment. Some might think that risk quantification starts with risk definition. Risk assessment is hampered when parties describe the same digital risk differently.
The Risk Matrix is Poorly Formulated
A risk matrix is essential for the assessment of digital risks. Where the risk matrix is inadequately formulated, the identified digital risks are improperly categorized.
The digital risks audit becomes inaccurate when the risk matrix is incorrectly formulated. The wrong risks are given top priority, while the critical digital risks are given low priority. It acts as a barrier to risk assessment and leads to the selection of the incorrect technique for handling identified digital risks.
Failure to Embrace the Culture of an Organization
Risk management is ingrained in the culture of those who own digital risks. The company’s overall risk management culture must be supported by digital risk assessment. Because of this, a company cannot allocate its resources for risk assessment in an efficient manner without a clearly defined risk management culture.
Human labor is one of these resources for managing digital risks. When giving instructions for digital risk assessment, an organization without a clearly defined risk management culture is not being strategic. Therefore, stakeholders who conduct risk assessments are not being objective. Such an organization may experience dysfunctional communication in risk assessment. The team in charge of tactical risk assessment does not follow the same playbook as the risk assessment leaders.