Speed of digital transformation key risk-management challenge: PwC survey

In this turbulent business environment, many executives find the need to revise and adapt their strategies and operating models at a rapid pace.

Signalling a need for much more preparedness in dealing with the new-age business ecosystem, nearly eight in 10 business executives in India opined that keeping up with the speed of digital and other transformations is a significant risk-management challenge.

According to the India highlights of PwC’s 2022 Global Risk Survey, six in 10 executives feel the need to actively seek external insights to assess and monitor risks in the increasingly disruptive business environment.

The survey saw participation from 109 Indian respondents, with leading business executives making up 72% of the sample and the rest comprising risk management (13%), audit (10%) and compliance (6%) professionals.

The survey finds that 70% of business leaders are increasing overall spending on risk-management technology, while 67% are investing in risk culture and considering behavioural risk in 2022 and 64% of business executives report that their risk function is actively seeking external insights to assess and monitor risks.

Sivarama Krishnan, partner and risk consulting leader, PwC India, said: “Organisational risk management and broader resilience capabilities need to quickly adapt to support business agility and contribute proactive, robust and timely risk insights for decision making. In an environment where change is constant, risk-management capabilities provide the greatest value to board members and business leaders when they are embedded within the organisation’s strategic planning and decision-making processes. Informed by a panoramic view of emerging risks, business leaders can make confident decisions in pursuit of their strategy.”

The changing work environment brought on by the pandemic continues to disrupt talent and labour markets. Supply shortages, sanctions and rising raw material costs are heightening risks within supply chains as organisations deal with upstream supply chain risks related to subcontractors and other fourth parties that further complicate risks.

The survey said that customers, investors and other stakeholders are laser focused on ESG, including the physical and transition risks that a changing climate poses. Each of these risks can cause significant impacts, but because they are also highly interconnected, any one risk can initiate far-reaching implications across the enterprise and put brand and reputation at stake.

In this turbulent business environment, many executives find the need to revise and adapt their strategies and operating models at a rapid pace.

In this context, survey highlights five key actions that organisations should consider to drive their risk management capabilities forward such as engage early and get risk insights at the point of decision, take a panoramic view of risk, set and employ risk appetite to take advantage of the upside of risk, enable risk-based decision making through systems and processes, and double down efforts on top risks.

“Any one person cannot manage risks. When it comes to business, risk management is the ultimate team sport. Teams across all the three lines of defence in risk management need to work together to build a risk resilient organisation and thrive in an environment which is turbulent and disruptive,” Krishnan added.

Investment in risk processes, frameworks and enabling systems is needed to help an organisation deploy a standardised and consistent approach to risk management. While 76% of organisations report that having technology systems that don’t work together is a significant risk management challenge, just 28% of those are addressing that challenge in a formal, enterprise-wide manner, the survey said.

Risk appetite is a critical tool to help business leaders understand where they are able to take more risk in pursuit of new opportunities and growth. It denotes the guardrails within which the board asks executives to stay as they make decisions and execute on their strategies. Risk culture also plays a role in taking advantage of the upside of risk. A too strong compliance culture can stifle innovation, for example, while too weak compliance focus can impact brand and reputation.

The survey also finds that when organisations embrace risk management capabilities as a strategic organisational capability, they are five times more likely to be very confident in delivering stakeholder confidence, a growth-minded risk culture, increased resilience, and business outcomes. Strong risk management capabilities help protect the organisation from downside risks and enable the organisation to look forward and take risks in pursuit of growth. It’s a win-win situation. The top 10% of respondents — the ones that are realising the benefits from strategic risk management practices — expect faster revenue growth and better outcomes, it added.