Distance MBA: Why risk management is gaining importance?

Today we live in a VUCA world. The world that is volatile, uncertain, complex and ambiguous. Here, every big company is under pressure of managing risks. Risk management has become a strategically important issue due to growing complexity of business environment. Hence companies are taking this as one of the agendas at the board level.

Understanding of risk and its management is important from top management to all levels of business managers. For some industries like finance and insurance, there is a special job profile called as risk manager. So knowledge about different business risks needs to be studied by every student of distance MBA course irrespective of whether he/she is pursuing career for in risk management or not.

Risk and Risk management

Let us first understand what is risk and its management. Then we will try to elaborate this more with actual examples from the field.

Risk – A probability or threat of damage, injury, loss, or any other negative occurrence that is caused by external or internal vulnerabilities, and that may be avoided through preemptive action. – Business dictionary

Simply put risk is about uncertainty and probability of undesirable outcome. Every business has risks and those needs to be managed.

Risk management is a process of identifying potential risks in advance, analyzing them and taking actions to control/reduce these risks. In other words, controlling the business impact by avoiding the risk or controlling the damage if it occurs.

Allianz Risk Barometer is one of the reports published every year which lists top business risks. In the recent report for 2019, the contender for the top position was “business interruption” for the seventh year in a row with 37% of responses ranking it as one of the three most important risks. It was joined by risk of “cyber incidents” with equal 37% votes for the first time.

Business Interruption

Every business depending upon its nature is subjected to different risks. One of the key business risk studied is business interruption. Business interruption is a state when business becomes standstill due to some unavoidable reason.

Business interruption can happen due to many reasons.

• Problem with software and IT systems
• Product recall due to technical/environmental issues
• Terrorist attack
• Political violence(strikes/riots)
• Environment pollution
• Political uncertainty

The average BI property insurance claim now totals over €3mn ($3.4mn) at €3.1mn and the average insured loss from a cyber incident is now just over €2mn3 ($2.3mn) – Allianz Risk Barometer 2019

Cyber Incidents

With the technological advancement such as internet, cloud computing, mobile devices, internet of things(IoT) etc. there is an increasing concern about cyber security. There are incidences where technology is used to steal trade secrets, business strategy and plans, customer data etc. which has big implication on businesses.

Information security is becoming concern for every organization be it a small or large. Along with value of data due to security breach, loss of reputation is one of the big issues.  Companies have to start doing active risk management based on the kind of business and other risks they are exposed to. Based on their size, organizations are doing investments in technology to strengthen information security, backup and restore mechanisms, implementations of business continuity and disaster recovery plans.

Cyber crime costs an estimated $600bn a year up from $445bn in 2014. This compares with a 10-year average economic loss from natural catastrophes of around $200bn – three times as much.

– Allianz Risk Barometer 2019

Beyond these first two top risks, following risks are at number 3 to number 10.

• Natural Catastrophes
• Changes in legislation and regulation
• Market developments
• Fire, explosion
• New technologies
• Climate change/increasing volatility of weather
• Loss of reputation or brand value
• Shortage of skilled workforce

New ways of Risk Management a distance MBA in Risk Management should know

There is a long list of threats which keeps on adding to worries of businesses. To handle such risks new approach and new risk management solutions are needed. As a student of distance MBA in risk management one must be aware of such mechanisms which are getting developed.

European Union’s General Data Protection Regulation (GDPR) is a legislative attempt to protect the privacy through imposition of large fines. Cyber insurance is an added element to cyber incident response. This can be used to defend for loss of income and costs incurred due outage of the systems due to hacking. Drones are being used by insurance companies for accessing the tune of damage.

New technologies would bring their risks along with them. As manager one must be ready with the wherewithal to handle the risks. The only managers who can do this would stay and grow in their careers for sure.