Two Ways to Increase Risk Intelligence in an Uncertain World

By Samantha Beavers

With an increasingly complex risk landscape, risk management can feel a lot like playing Whac-A-Mole. After effectively mitigating one risk, a new one pops up – only to be followed by more in quick succession. The challenge isn’t only to keep your eyes peeled, but also to be well-positioned to react quickly.

Unlike the arcade classic, though, the risks aren’t identical. And, as more businesses are beginning to understand, not every emerging risk needs to be quashed immediately.

Businesses that take their strategies seriously, then, must be equally serious about increasing their risk intelligence – exploring new ways to identify future threats and opportunities while also seeking to understand how these risks affect their strategic goals.

Enter scenario planning and war gaming.

According to Deloitte, these are two keys to forming a risk intelligent enterprise. And, when implemented together, they help organizations support strategic initiatives, see the risk horizon with a wider lens and weigh the potential impacts of their risk responses.

Visualizing the future

In scenario planning, organizations work to envision a variety of potential scenarios – especially ones that would have a significant impact on their strategic objectives.

The aim of scenario planning, however, is not to predict the future – but to prepare for it. Rather than trying to pinpoint exactly what lies ahead, scenario planning helps businesses carefully consider a wide range of scenarios that may or may not occur in order to prepare for whatever comes their way.

To conduct the process most effectively, businesses are wise to analyze data and take note of any meaningful insights that may shed light about the future, as well as any current trends shaping the market. That said, they shouldn’t presume that the future environment will neatly reflect their current conditions, as this may overlook potential risk events that could change the landscape entirely.

Ideally, scenario planning takes into account every kind of future scenario, including the outcomes of low-probability but high-impact events. To facilitate this process, Deloitte recommends that organizations ask themselves a series of questions to understand the focal question, relevant driving forces and critical uncertainties at hand. Then, after hashing these out, they can consider how these factors might compound into unexpected realities and play out in future scenarios. Finally, they can explore how these scenarios might impact the organization’s strategies and identify early warning indicators to watch out for.

In addition to challenging any assumptions businesses hold about the future, the process also helps them prepare for the unexpected by developing risk mitigation strategies for these scenarios, should they materialize. Likewise, the process can help organizations spot strategic opportunities on the horizon and know how to respond. 

Putting strategies to the test

Organizations can also prepare for the future with war-gaming. An experiential learning activity that develops realistic environments, war-gaming gives businesses space to practice and test their strategies – and to understand the various risks associated with them.

While it is typically used for cyber events, Deloitte notes that war-gaming can be leveraged for other strategic issues as well. It is especially well-suited for product launches, price changes and other situations where the outcomes of strategic decisions rest heavily on the responses of external parties.

With war-gaming, businesses can consider how consumers, competitors and other external parties may react to certain changes and can assess any potential second- and third-order effects of these strategic decisions. For this reason, war-gaming may illuminate risks and opportunities that traditional mental models might not catch.

The benefits are myriad. By rehearsing their strategies and assessing the potential outcomes of these decisions in a realistic environment, businesses can get a better grasp of what it takes to execute these strategies effectively, get more insight into who should do what, uncover outstanding vulnerabilities and discover ways to further refine their strategies. Then, when the time comes, they can make stronger, more informed decisions.

Brighter futures ahead

Both scenario planning and war-gaming are useful tools businesses can leverage to enhance their strategies, be proactive about risk and think outside the box. Better yet, it allows organizations to become more agile and more resilient – no matter what pops up.

This post was originally published in Master of Management Risk & Analytics.