Ongoing grim economic news suggests the global economy could be heading for a major slowdown. In the United States inflation has reached a four decade high of 9.1%. In the Euro Zone, Reuters has reported an accelerating downturn in manufacturing. Meanwhile, in Australia, news reports say major banks expect inflation to go up by about 6%.
The darkening economic shadows imply a business environment of increasing risks. However, a recent study by real-time risk detection platform Dataminr, said almost one third of Australian businesses have zero investment in risk resilience. Perhaps more surprising, only one in five businesses viewed the climate crisis as a significant risk factor for their business operations.
“I was not surprised by how businesses prioritised different risks, but I was surprised by the lack of investment in proactive solutions and strategies,” said Luke Coley (pictured above), Dataminr’s senior director APAC.
The study surveyed more than 300 Australian decision makers on how their business managed risk and resilience in a post-COVID-19 world and which risks they expected to face in 2022.
Read more: Warning for businesses over unpreparedness
“Even though risk resilience is a top boardroom agenda, we know many Australian organisations still have a fair amount of work to do before they can become truly resilient,” said Melbourne based Coley.
Respondents represented a range of industries including healthcare, education and training, government, manufacturing/engineering, and IT and telecommunications. Dataminr said more than 50% of respondents are responsible for “final decisions on business continuity spending and efforts.”
“The study found approximately 40% of respondents listed staff retention, supply chain disruption and cyber crime as top concerns for their business,” said Coley. “I think we will see that continue into next year.”
However, Coley was surprised that only one in five businesses counted the climate crisis among “significant risks,” especially given the increasing frequency and severity of extreme weather events and their impact on businesses across the country.
“I believe this speaks to the gap between resiliency planning and known risk factors,” he said, adding that stress testing is an important way businesses can plan for risks and brokers can help run through these scenarios.
“Unfortunately, stress testing is not as widely built into business culture as it should be,” he said. “Running regular crisis simulations and tabletop exercises will also help to define clear roles and responsibilities to minimise risk and damage in times of crisis.”
He said the process helps ensure both parties understand the business in detail and the processes put in place to tackle crises.
Coley said his firm’s study is a reminder for business leaders that they must fully understand “the scope and nature” of the factors involved in business risk management. He said this includes the significant planning and preparation to mitigate risks and high-impact events “that are and aren’t within their control.”
“For insurers and insurance brokers, it’s about how to use this information to educate and inform business owners on risk considerations within their company and what impact they have on their bottom line,” he said.
Coley said the study did not show indications of “outright neglect” by businesses in terms of their risk management. Rather, he said resources are being prioritized “for survival and reactive strategy instead of proactive resilience planning.”
“If nothing else, the findings of this study show that risk management and corporate security are a surface level priority for many businesses,” he said. “This could be a result of the diversity and speed of threats businesses are facing today.”
Risk experts agree that mitigating threats starts with knowledge.
“One of the enemies of risk management is a lack of knowledge,” said Sydney-based Stuart Selden, manager of Business Risk Consulting Asia-Pacific and chief risk officer in Australia for FM Global, the multinational commercial property insurer. “One of the things that we will always try and encourage clients do is build knowledge, whether it’s around their own properties, or whether it’s around their suppliers’ properties, or even their clients’ properties.”
When Donald Rumsfeld was discussing his “unknown unknowns”, Selden said the former US secretary of defense was actually making sense. The chief risk officer said he often uses Rumsfeld’s infamous remarks as a “framework” for clients.
“He copped a lot of flak for it at the time, but in fact when you boil it down what he said made an awful lot of sense. We have to categorize what we know and what we don’t and deal with them differently,” said Selden.
