In a world fraught with turmoil and embroiled in constant change, the role of risk management is more important than ever. And when it comes to managing risk, it seems common sense to say that it is best to be as well prepared as possible.
As it stands, however, companies are incurring massive financial losses and seeing reputational equity fall as a result of their reliance on reactive risk management processes. Executives are often left looking in the rear view mirror at events with potentially devastating consequences for their business, desperately mopping up after the flood rather than erecting a barrier to keep it out in the first place.
Senior managers are increasingly realising that delays in identifying issues and future trends are potentially crippling for their corporation. In their search for better risk management, they are recognising the impact that risk visualization and predictive analytics can have for their attempts to mitigate future risks. One global survey conducted by the IBM Institute for Business Value found that 47% of organizations across a range of industries are now applying predictive analytics alongside business insight to manage risk.
Rita Sallam, a research vice president and analyst at Gartner, concurs, saying: “Risk is one of those areas that is a key beneficiary of advances in predictive analytics due to the ability to identify and predict vulnerabilities, instances of fraud, security breaches and the quality of control systems and governance. It is also one area where companies have high intentions, over the next several years, to invest in the technology and increase their usage.”
Forward thinkers, such as Credit Suisse, are establishing best practices in risk management by utilizing the massive advances in data gathering techniques. They are able to apply insights gleaned from the sizeable amount of customer data and risk indicators produced by this across products and geographies. Data visualization then allows the information to be communicated rapidly and clearly so that firms can quickly prioritize where their response to an arising situation should be directed, and implement already fully detailed mitigation plans wherever is necessary.
IBM research into firms who have used such an analytical and pre-emptive approach reveals impressive returns. It found that such companies reported an average of 24% greater cost efficiencies through modelling risk scenarios and optimizing processes, 21% improvement in growth as a result of reduced interruptions to product/service delivery and customer satisfaction, and better brand reputational equity. With the global climate becoming increasingly fraught and complex, and events impacting firms with ever increasing speed, it is vital that they are properly prepared.