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With a growing amount of risks that are intersecting and amplifying one another, companies must embrace a “risk multiplier mindset”, says the firm.
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Business leaders must focus on more than one risk: BDO
18 July 2023
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Business leaders need to focus on more than one risk facing their firm, with the growing amount of hazards being amplified by each other causing greater concern for companies, according to BDO.
BDO’s latest Global Risk Landscape report found the increase in risks meant 85 per cent of business leaders said their focus is on the connections between them rather than individual risk factors.
BDO’s national leader for risk advisory in Australia, Marita Corbett, said the interconnectedness between risks is rightly more of a concern for leaders than the individual hazards on their own, with 78 per cent of respondents agreeing risks are becoming more connected and complex.
“More and more we are seeing individual risks overlapping and amplifying each other with devastating and unexpected consequences. This is the risk multiplier effect and it can be more potent than individual factors,” said Ms Corbett.
“Today’s C-suite and boards are dealing with fragile supply chains, cyber criminals using AI to target high profile companies, an ever-evolving digital world, skills shortages, and climate goals that they must work to achieve. When these risks combine, the impact can be huge.”
“Many of the world’s largest companies have already embraced a risk multiplier mindset, but companies of all sizes should be thinking about risk in the same way.”
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The report said Australian and Asia-Pacific business leaders found environmental risk, economic slowdown and cyber attacks as the risks they are least prepared for, while globally 44 per cent believed climate change poses an existential risk to their business.
Ms Corbett said incorporating a risk-welcoming mindset is important as well as understanding the risk multiplier effect that could make businesses aware of new risks.
“One example is the intersection of cyber risk and supply chain risk where one of your suppliers is targeted and their operations are impacted. For some companies, this will be a brand new threat that wasn’t on their risk radar,” she said.
“A risk-welcoming mindset is really important in this type of environment. The risks are inevitable and they are always changing, so acknowledging this and preparing accordingly is crucial.”
Ms Corbett said businesses with a risk expert within their C-suite would be more prepared than those without.
“The best way to create a proactive, risk-welcoming mindset and culture is to have a risk expert firmly embedded in the C-suite, and we can see companies are embracing this with just under two-thirds of respondents saying this was a C-suite position in their company. Another third of companies surveyed said they were considering a C-suite risk expert in the future,” she said.
“It is also critical that leaders bring together expertise from across their organisation to understand and manage risk multipliers, but our research shows only 26 per cent of companies are doing this.”
“Not everyone needs to be an expert on risk management, but everybody needs to have that awareness. Risk management must become part of the entire company’s strategy and culture, and this starts from the top.”
The report also found approximately two-thirds (66 per cent) of business leaders in the Australian and Asia-Pacific region feel regulatory changes such as ESG reporting pose a somewhat significant threat to their company.
“Mitigating the regulatory risks created by more stringent ESG requirements is something businesses across the global have to manage,” said Ms Corbett.
“For business in the APAC region seeking to work with China, it is imperative to keep up with the latest regulations, proactively mitigate the risks with the help of risk experts, and operate sustainably as part of a bigger regional and global commitment to meeting ESG responsibilities.”
“This is no doubt a risky environment to operate in – an improved and more proactive approach is particularly timely. Business leaders must move away from a preventative approach and focus on mitigating the inevitable risks in an era where change and upheaval are unavoidable and constant.”
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