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Again and again, significant business, financial, and economic crises have not been adequately foreseen or their impacts prevented – despite the use of extensive risk identification, evaluation, and management efforts.

KPMG's examination into the root causes for these ‘failures’ has revealed that:

1. The traditional approach fails to recognise that individual risks are linked (i.e. risks are interconnected) and that there can be “contagion” (i.e. flow on effects) between risks.
2. The past is a poor predictor of the future. The future is being shaped by “structural breaks” – macro-economic, socio-political, and other mega-trends not necessarily observed before.
3. Risk is very often disconnected from strategy. Consideration is not given to the risks we are actively taking with our strategy and additional risks that could undermine the strategy.

A new approach is required to keep pace with expectations of risk management and organisational change.

 

TRA vs DRA

Typically, risk assessments have been two-dimensional. They focus mainly on the likelihood of something happening, and the impact that would have on your business. But as our global economy becomes more dynamic and connected, traditional risk frameworks have become obsolete.

Here's how KPMG's Dynamic Risk Assessment gives senior leaders a greater perspective on what the most critical risks to their strategy are, and how these influence your strategic choices and governance.

Our Dynamic Risk Assessment (DRA) tool goes beyond the conventional depictions of risk - shifting our understanding from the two-dimensional view of independent risks to an interconnected view of the four dimensions of risk – Likelihood, Impact, Velocity and Connectivity.
 

How do we create this view of your network of risks?

KPMG applies network theory to identify expected contagion between structural breaks, global risks, mega trends and organisational risks.

We co-develop this by working with experienced individuals from across your organisation, and applying advanced algorithms and data analytics to produce a range of depictions and comprehensive analysis of your systemic risk network.

The output?
 

The output

Valuable content and insights that will enable you to make more informed decisions within your organisation about how to best tackle and monitor these threats and, where possible, create opportunity.

Throughout the DRA process we gain a deeper understanding and document:

1. How “structural breaks” (macro-economic, socio-political and other mega trends not necessarily observed before) impact your risk profile;
2. How your individual business risks may be linked, and the “contagion” (i.e. flow on effects) between these risks (risks of intermediate severity and likelihood can, through contagion, combine to generate coordinated risk events more severe than any individual risk); and
3. If a risk was to occur, how quickly it would adversely impact your business.

By exposing the expected contagion effects between global and enterprise risks, we can objectively measure the genuinely significant threats. These may not be the risks with the highest impact individually, but rather the risks with the most significant connections and, hence, the ability to trigger several risks in a short time frame.