Many risk management practitioners are struggling to connect the risk management process to the strategic planning process. Identifying and managing emerging risks can have serious implications for the strategic planning process.
Emerging risks are considered trends, innovations and potential game changers most relevant to a specific sector. They can include macro trends such as: urbanization, technological innovations (e.g., robotics), and political changes (e.g., Brexit), to name but a few examples.
A challenge when it comes to emerging risks is that they are known to some extent, but are not likely to materialize or have an impact for several years. An emerging risk slowly starts as a (mega) trend or an innovation but that slow start can potentially have a very high impact on the longer term.
One example of an emerging risk for public entities is the aging of the public workforce due to a higher life expectancy, combined with improved healthcare services and changes to the retirement age.
In order to help public entities consider whether an aging public workforce may or may not be an emerging risk issue, public entities need to take a few actions to begin to understand the risks and the opportunities associated with this aging workforce.
Some actions may include: (i) obtain the overview of employees that are approaching retirement age; (ii) evaluate whether these employees are considered as critical functions; (iii) consider the causes and consequences associated with the risk of having a percentage of these employees leave, for example tomorrow; (iv) assess the processes related to knowledge management and knowledge transfer; and (v) align employment policies, plans and programs with the appetite of the organization for encouraging early retirement or discouraging staying after a certain age.
Public entities may or may not already address (some of) the risks and opportunities associated with the aging of public workforce, but this is maybe symptomatic of a more important issue for some public entities, which is not being sufficiently prepared for emerging risks due to unsufficient available information of the impact or likelihood of such emerging risks. To be able to effectively respond to emerging risks when they materialize, public entities must therefore adopt a systematic approach that incorporates emerging risks in their risk management process.
Some key questions may include:
As a matter of fact, emerging risks are particularly important in the strategic planning process since it has a long term time span. By focusing on trends that are slowly emerging, public entities can identify potential shifts in critical assumptions and develop or modify strategies to either minimize the negative effects or capitalize on the opportunities that an emerging risk may present.
Incorporating the consideration of emerging risk in the strategic planning process can yield great benefits, such as having sufficient time to prepare. This is an opportunity for the risk management function to be a value-adding resource in the strategic planning process.
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