According to the Boston Consulting Group’s Global ESG, Compliance and Risk Report 2023, the difference between surviving and thriving for a business lies in its ability to anticipate and manage risks effectively. While it appears the worst is behind us and the economy is slowing, cutting costs in risk management would be a mistake.
The Boston Consulting Group’s analysis offers a perspective based on interviews conducted with executives from 150 groups operating in various industries and markets.
Over the past three years, characterized by pandemics, energy crises and conflicts, businesses have faced unprecedented challenges. And in an era defined as ‘permacrisis’, a condition of permanent crisis characterized by the succession and overlapping of emergency situations, risk management emerges as a key element for sustainability and prosperity for companies.
In the era of permacrisis, prevention becomes crucial
Investing in the prevention and management of risks, from traditional ones, such as labor shortages or obsolete technologies, to emerging ones, linked to the climate crisis, ESG liability, regulation, cyberattacks and artificial intelligence, is crucial.
Risk management, then, is no longer a relevant aspect only for the financial sector, but is equally essential for sectors such as energy and transport.
Business continuity in extreme situations, such as pandemics or large-scale cyberattacks, becomes imperative for all companies. There is a clear gap between companies experienced in risk management and those less mature, but there is a growing awareness of integrating risk management with business activities.
The importance of control systems increases with company size
The results of the survey show that approximately three-quarters of companies expert in risk management attribute a decisive role to this skill in overcoming recent crises, while only 37% of less mature companies share the same perception.
Company size plays a key role, with the importance of control systems increasing with the size of the group.
Larger companies benefit from effective risk prevention, using ad hoc committees, incorporating risk management into industrial strategy and analyzing data. Technologies such as Artificial Intelligence are used to predict and mitigate risks.
How should developing businesses act?
The challenge for companies in the early stages of developing risk management is the lack of support from the top and the corporate culture not adequate to address emerging dangers.
The key to moving from amateurs to mature companies in risk management is, therefore, to establish a central body that defines a strategy based on an in-depth analysis of traditional and emerging risks.
The information flow, beraking latest news reports, must be bidirectional, from the operational levels to the strategic committee. Real-time data collection and analysis, enhanced by the use of AI, is critical.
Staffing with strategic skills, data analysis capabilities and the ability to lead the company towards a new risk management model are the next steps companies must take.