By Henry Uche
Risk is a phenomenon. Every business faces different kinds of risks at every stage of business growth. The way and manner we handle risks goes a long way to affect our individual life, corporate organisations and our environment at large. Since the primary purpose of being in business is to make profit and sustain growth, decisions on risks- related issues are not easy to come by, however such decisions must be taken painstakingly. For this reason, experts in risk, hazards and crises management are leaving no stone unturned to ensure that people take calculated risk if one must stand strong when the expected or unexpected incidents happen.
Speaking with the Head of Risk Management and Compliance, at Sovereign Trust Insurance, Mr. Sanni Oladimeji, outlined ten major risks corporate organisations must watch out for this year 2023, if they must survive the ever- turbulent economic and business environment.
First is the Regulatory Risk (a high profile kind of risk). This type of risk can be seen in changes in regulatory or legislative policies or level of compliance that may threaten the company profitability or result in sanctions. Uncertainties could arise from increased introduction of complex regulatory requirements and strict monitoring/supervision of operators by NAICOM, SEC, NGX, FRC, FIRS, LSIR & other government agencies. Often, regulatory changes can lead to increase in operational cost, changes in the competitive landscape or reduction in the attractiveness of a sector to investors.
Mitigation: A responsible company would deliberately develop and maintain an up- to- date regulatory rulebook as a comprehensive repository of all regulations impacting it. The rulebook may be further enhanced by automating the process for notifying responsible officers of their compliance obligations and escalating non-compliance to supervisors in a timely manner.
There is a need to set up relevant oversight structures at the board and management level for periodical monitoring to receive assurance on regulatory compliance. There’s also need to develop a framework for engaging and managing their regulatory stakeholders.
Risk managers should assign internal or external resources to continually monitor new and proposed regulatory changes and report on their impact to the business. They should also dedicate audit resources to evaluate the organisation’s processes for monitoring and complying with all applicable laws and regulations.
The second kind of risk is Fiscal & Monetary Risk: These are inconsistent and contradictory government policies arising from impact of global pandemics resulting to reduction in economic activities, drop in oil price and consumer spending. Loss of business resulting from the implementation of unfavourable fiscal and monetary policies.
This a high level risk can be mitigated by: Reviewing organisations’ credit exposure to public sector, with a view to reducing concentration; implementation of sales incentives to stimulate consumer spending through near-term price changes and discounts; reviewing existing credit terms with banks and borrowing corporates to minimise the risk of default, development and continuous review of viable business strategy as well as reduction of cost of operations through process automation.
Foreign Exchange Volatility Risk: This high level risk could posed by the exposure to potential financial losses due to the fluctuations in the exchange rates between currencies, which would significantly affect claims pay-out of foreign currency denominated policies.
There are three critical foreign exchange risks that businesses are exposed to: Transaction, translation, and economic risks. Transaction risk applies to completed transactions either made or received in foreign currency but yet to be settled.
The risk is that the currency may fluctuate, harm the company, and coerce them to exchange currency under less favourable conditions than initially budgeted. Translation risk is a change in the financial position (assets, liabilities, equities) due to exchange rate changes. While economic risk arises when a local currency strengthens, and companies become less competitive than their foreign counterparts. This is largely influenced by macroeconomic factors, geopolitical factors, and hurricane.
Mitigation: Building a stream of foreign currency income or inflows; Identifying potential hedging instruments such as futures and forwards, to effectively mitigate volatility; Identifying and converting opportunities to reduce foreign denominated outflows by sourcing raw materials & services locally and reducing exposure to foreign denominated payments/loans. Then Scenario planning — which anticipates multiple exchange rates and plans the volumes of transactions against worse -case scenarios.
Cyber-security Risk: The ever-evolving nature of cyber-attacks in recent times, demands every organization to adopt innovative approaches to the management of cyber security risks. Unauthorised access gained to the company systems and network devices, intentional manipulation of IT programs and data, usage of stolen digital intellectual property.
This high level risk -High can be mitigated by adopting a risk-based approach and protecting what matters — identify your crown jewels and invest in securing them.
Other mitigation strategies are: Assessing and managing third party cyber-security risk — One needs to assess and manage one’s risk exposure which are due to third-party connections and/or relationships.
Build capacity to effectively respond to cyber incidents is pivotal — It is no longer enough to invest in prevention of cyber incidents, organisations need to build capacity to respond and stay resilient to cyber attacks. Identify new cyber threats and risks proactively —Threat intelligence is as important as visibility into security incidents and by conducting Data Privacy Impact Assessment of existing processes and build capacity in data privacy measures.
Technology Infrastructure Risk: This is risk of inadequate information technology infrastructure and Enterprise Resource Planning (ERP) system to effectively and efficiently support the current and future needs of businesses as a result of introduction of new regulation and reporting requirements. Inadequate information technology infrastructure and ERP system to effectively and efficiently support the current and future needs of the business could be precarious.
This high level risk can be mitigated thus by: Developing a technology strategy that aligns with business objectives; establishing adequate governance for technology infrastructure management and investment; develop and implement a technology risk management framework and establishing a cloud adoption strategy as well as cloud governance framework to guide the journey to cloud.
Political Risk. This is the most watched out because political activities affect the economy of the country as Nigerians have experienced in the past six months. In this high profile risk, when there is no harmony and cohesion between the three arms of government, it affect good governance and conducive business environment as amplified during the electioneering season. Because of Political uncertainties arising from actions of government at different level (local, state or federal), businesses would thread with caution.
To mitigation this risk, there should be Scenario planning and anticipating political moves that are consequential for business operation and taking appropriate proactive decisions are imperative. More so investment in information and intelligence networks are wise decision to make.
Health, Safety and Environment Risk – This is a risk to the health and safety of employees against the backdrop of increased wave of highly contagious sickness and diseases ravaging the world today.
This high profile risk which could be mitigated by: Strengthening and enforcement of Health, Safety and Environment (HSE) policies and procedures to mitigate the risk of the virus spreading within and outside company premises.
There should be strict enforcement safety and health protocol; review and implement a work from home policy where possible; encourage and monitor complete vaccination of employees where necessary and reducing physical contacts of clients and visitors through engagements via technology.
Competition Risk: Here, there is an increased in unhealthy competition and entry of new players. In the recent past, six new operators were licensed in the life, non-life and reinsurance segments of the Industry. The new players’ will intensify competition in the Industry. New insurance products and business practices are also expected from these new players.
This high profile risk can be mitigated by coming up with product differentiation, product innovation, simplified and cost-effective processes, superior customer service/exceeding customers’ expectations, digital customer engagement, competitive pricing and prompt claims payment.
Customer Attrition Risk: Here, loss of key customers and patronage resulting from perceived or actual inability to meet customers’ expectations. Customers are now more sensitive to the quality of experience they receive and their perception of value for money. They will often compare their experiences across sectors using the best experience as the baseline for all others.
Customer attrition risk is a medium level risk which can be mitigated by setting out a clear vision for customer experience, invest in understanding the value drivers for customers and build them into the propositions and experiences they offer.
Align the organisation around the customer experience vision. Delivering a valuable customer experience — that prevents or minimises attrition risk spans of the enterprise, not just one department. Companies should leverage digital and emerging technologies such as AI, and Machine Learning to improve customer experience and drive internal efficiencies across the business.
The last but not the least is talent Shortage: Here, there is inadequate level and quality of skills, knowledge, and experience required to achieve business objectives and/or sustain growth in this complex and dynamic business environment.
This medium level of risk can be mitigated by clearly defining and executing a succession management plan in order to ensure a ready pool of talent for critical roles at any point in time. Enhancing the employee experience in order to attract and retain key talent and designing Learning and Development (D&L) solutions that equip talents with the emerging skills of the future are equally indispensable.
