Businesses today have become larger and more complex than ever before.
A global economy fuelled by a dynamic rise in technological advancements has produced new and emerging risks which, for some businesses, has outpaced the ability to properly manage them.
A bright side of this new digital age is the explosion of data collection. It that has created the ability for organisations to quantitatively analyse and measure data that can assist in managing risks across the enterprise. For the past several years, data has become more valuable than almost any other commodity.
Risk analytics is not a new field, but has been greatly improved by technological advancements such as artificial intelligence (AI) and machine learning. The use of risk analytics by companies has also increased rapidly as the risk analytics market is forecasted to experience an estimated 17.4% compound annual growth rate from 2019 to 2026. This is due to the value risk analytics can bring to assist an organisation in identifying and addressing vulnerabilities before they convert into adverse events.
This article will cover a few benefits that risk analytics provides to organisations in helping achieve objectives by increasing decision-quality when uncertainty is involved.
Unlocking Unlimited Possibilities
Data is the new oil or precious metal in terms of value. When risk analytics systems can collect data flowing in from all areas of the enterprise, the possibilities are endless in how data can be used to improve business processes, illuminate adverse emerging trends, and/or establish and measure key risk indicators. Also, the more data collected by internal systems the more powerful risk analytics can be in uncovering opportunities that may be masked behind current risks being evaluated. It is simple – more data equals more possibilities. All that is needed is creative minds and nothing is impossible to envision as obtainable.
Forecasting Decision Outcomes
An abundance of empirical data allows risk analytics systems to sift through high volumes of data to create forecasting models which can support decision making processes. Objective data helps mitigate cognitive biases that can fog mental processes involved in strategic decision making.
Historical data injected with artificial intelligence can create random scenarios on what outcomes could happen in the future. This allows business leaders to establish risk appetites and boundaries on what they are and are not willing to accept when it comes to loss.
Effective Use of Resources
Risk analytics processes can monitor how risks are being treated, so allocated resources can be more efficient. As no business has infinite resources at their disposal for managing risks, using data to measure risk treatment performance is critical. By monitoring risk response strategies using analytics, businesses can see the direct value being produced from their investment in enterprise risk management.
Risk leaders who can facilitate cost effective risk response across the organisation, are leaders who are adding value. Reduced risk management costs can be re-invested back into the organisation – available for use in other areas. This is a classic example of how enterprise risk management creates and protects value for the business.
Illuminating Interconnected Risks
One of the greatest benefits of risk analytics is how it assists in illuminating interconnected risks.
COVID-19 is the perfect case study into how interconnected risks are across the globe. For example, a global pandemic could impact IT, Human Resources, Supply Chain, Operations, and Procurement business units all at the same time. If these interlinks are discovered through collected data, organisations can see how these networks of risks can disrupt the achievement of strategic objectives. Also, risk analytics can illuminate how resources are being deployed to respond to these siloed risks to see if there are any redundancies in how resources are being used – a cost cutting measure that no senior leader would refuse.
