With geopolitical risks becoming much higher profile on the risk radar, demand for a collaborative response from risk and internal audit professionals is higher, an Airmic report has contended.
Post pandemic, explains Airmic’s CEO Julia Graham, there was a positive environment where it was expected that people and societies would be re-energised after the years of restrictions, and that a surge in the development and use of technology would create a better digital ecosystem and opportunities to thrive.
The CEO highlights that the future feels less secure and settled than expected, and optimism is more restrained. The current risk landscape has now been changed by more risks occurring and new and different risks emerging, she noted.
“With an escalating velocity in change and an increase in the complexity and connectivity between risks, we now find that risks considered beyond the horizon have arrived sooner than expected, and we now discover that elaborate supply chains have significant fragilities that were exposed by the natural world and the behaviour of some nations,” Graham said.
“Business leaders need to look further over the horizon but not be frozen into inaction by what they find, and they need to take time to assess the velocity and the nature and impact of change heading their way. While understanding these dynamics will not solve anything, achieving greater clarity about risks and their potential effects will make it easier to create appropriate interventions and to build a more resilient business.”
As both risk and audit professionals share an inexperience in dealing with the current risk environment, Graham highlighted that they must master new technologies, and understand business and technology dynamics. As well as to partner the business and their other business peers to help synchronise business reactions with external realities.
“However,” she noted, “with a tendency to be driven by schedules of work sometimes fixed up to twelve months ahead, and with a degree of rigidity in many of the risk management and internal control frameworks used, including the creation and management of risk registers, professional flexibility can be inhibited at the very time when these professionals should be at their most agile.”
“Risk and internal audit professionals must be responsive to the pace and nature of change, and continuously consider adjustments in their activities to reflect the purpose, culture and risk appetite of the business. They must operate a feedback loop and have the courage to step up with informed and timely recommendations for adjusting their approach collectively, where there are signals indicating they should do so.”
In late 2022, global management consulting firm McKinsey & Company reported that risk was at the top of the CEO agenda. “In the face of fragmentation and uncertainty, many business leaders are responding by intensifying their focus on resilience,” analysts stated.
Graham concluded: “Geopolitical risk is becoming far higher in profile on the risk radar of most businesses and is a board agenda item – and according to our research conducted in support of this report, one which demands a collaborative response from risk and internal audit professionals.
“It is harder for businesses to plan for disruption. Businesses are monitoring and navigating the short-term risk outlook, scenario planning for the longer view, but keeping an eye on strategic opportunities that can emerge from volatility. Building resilience is imperative. Businesses need to be prepared to deal with significant disruption caused by political incidents.”
