During a downturn, many businesses adjust their risk appetite, as risk expands to include supplier and consumer insolvency, as well as cash-flow shifts.
In the last year, several companies have undergone significant transformations. Some have shown resiliency in the face of adversity, while others have suffered. To navigate adversity gracefully and emerge from a difficult time in good shape, companies must have a thorough understanding of their business and the industry. Businesses must recognise risks, create incident management plans, and maintain visibility to effectively manage operational risk in an Economic Downturn.
The ability to respond quickly in the face of rapidly changing situations is essential to a successful strategy. Organizations should take a number of steps to obtain a better understanding of its activities and create a holistic image of the risks that matter the most. The sense of urgency that a downturn brings can be a catalyst for positive change and increased resilience.
Many companies often discover the need to modify their risk appetite during a downturn as operating risk is extended to include possible risks directly related to the downturn, such as supplier and consumer insolvency, and shifts in cash-flow trends, all of which could have been dependent on more stable trading cycles.
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Risk Appetite
It’s important to have a good view of the risk the company is willing to take. Different companies will have different tolerances for downtime and what their clients are willing to put up with. The process of defining major risks will serve as a catalyst for necessary change in addition to informing mitigation strategies. A changing external environment and a complex landscape will shed light on areas that need investment or even parts of the market that may develop.
Businesses must look beyond maintaining current customer experiences and cater to emerging demand as consumer behavior shifts.
Risk-Based Approach
Although compliance is important and easy to understand for company boards, a box-ticking approach to cybersecurity is not enough to address the specific threats that each company faces. It’s difficult to go from a compliance-based to a risk-based strategy, but the two aren’t mutually exclusive. It’s critical that companies align their plan with the overall company strategy and show the advantages in order to gain board approval.
Monitor Threat Landscape
Businesses must first create a clear image of the risks they face before crafting an effective risk-based strategy. There are several similarities, but each company’s threat environment is different. In recent months, volatility has created dramatic shifts, with a rapidly changing cast of bad actors possessing an increasing potential to harm.
Any snapshot of the threat environment can become outdated quickly. Businesses must keep an eye on the situation and monitor developments in organized crime groups and nation-states. When the company operates in many jurisdictions, this becomes more difficult because they must learn not only what various threat actors are up to in those areas, but also what the regulatory environment looks like.
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Plan Crisis Management
Companies can navigate through any crisis if they have a concrete strategy in place and well-defined responsibilities. Make sure the procedures and incident management plans are flexible enough to handle a variety of situations. Employees should understand what is required of them when an issue arises.
Individuals should be given the freedom to take charge and report back to upper management and the board on a regular basis. Remove roadblocks to quick action and break down barriers between silos to ensure that various people around the company can efficiently collaborate to solve problems and prevent them from recurring. To distribute the load and create understanding through divisions and geographies, the entire organisation should be held accountable.
Transparency is Key
Although internal visibility is essential, businesses can’t afford to leave out third-party partners, and sending multiple audit forms to suppliers is ineffective. When partners tell businesses what they want to hear, security becomes a tick-box exercise. Businesses must share details and make their partner preferences crystal clear. To efficiently manage risk and allow the agility to drive future success, it’s crucial to ensure that supply chain is open and fully informed.
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