The 7 Key Challenges in Risk Management for 2023

Risk management is the identification, evaluation, and prioritization of risks followed by the coordinated and economical application of resources to minimize, monitor, and control the probability or impact of unfortunate events or to maximize the realization of opportunities. Risks can come from various sources including uncertainty in international markets, threats from project failures, legal liabilities, credit risk, accidents, natural causes and disasters, deliberate attack from an adversary, or events of the uncertain or unpredictable root cause.

Let’s get to know the top difficulties that will be confronted by risk management in 2023, how businesses are handling risk now and how to address the issues in managing risks.

Challenges in Risk Management for 2023

“Top risk management challenges for 2023 include ESG risks, supply chain risks, fraud risks, cyber risks, labour shortages, skill gaps, changes in work-life attitude and risks of non-adherence to the compliance requirements. However, the resilience of the global economy and the will of the political class will hopefully tackle them in the most effective and efficient manner.”

Let’s get into the details of the risks including the nature and domains they may affect:

1. ESG Risks

Risks related to the environment, society, and governance (ESG) are causing a stir in the business world. We can first divide the ESG components into three groups, environmental risks, social risks, and governance risks. Environment risks refer to how the organisation manages factors like renewable energy, ocean protection, water conservation, waste reduction, and recycling. Fairness in hiring, promoting, and compensating all employees is a component of diversity and equity and is included as an ESG consideration under the heading of social risk. Bullying, sexual harassment, and discrimination go under similar categories.

Services to economically struggling places and support efforts to promote equality in education are both social risks. Social risks include salary equality, workplace safety, and human rights violations. Governance risks apply to a company's operational procedures.

Fairness in hiring, promoting, and compensating all employees is a component of social risk, an ESG element that also affects diversity and equity. Bullying, sexual harassment, and prejudice are examples of related topics. Assisting economically struggling communities or supporting equality in education initiatives for other organisations are examples of social hazards.

ESG risk management takes into account a variety of operational factors in addition to the conventional business and financial risks that every organisation encounters. Using an ESG risk management programme, a company can create a business plan that is specifically designed to handle different environmental, social, and governance concerns.

2. Supply Chain Challenges

Modern supply chain networks are advanced and intricate. There are problems with short-term costs and delivery due to the vulnerability of modern supply networks to diverse hazards. Supply chain challenges include global trade disputes, raw material shortages, economic instability and many more. As a result of global trade disputes, a greater number of consumer goods and industrial components are subject to additional import duties. When demand increases or there are production bottlenecks, the critical materials can be exposed to widespread disruption in the supply chain. Secondly, risks related to the environment are often uncontrollable and least efficiently managed. Extreme weather and other natural calamities are extremely challenging to control, and it too affects the supply chain severely. The effects of the economic slowdown also cause the supply chain to malfunction badly. Financial pressure on suppliers and industries at the bottom of the chain intensifies due to economic instability.

The modern supply chain is constantly evolving, and these changes are unavoidable. To combat hazards in the supply chain, risk management is required. Air, land, and ocean freight all use supply chains. Unsuccessfully assessing the risks in the supply chain will increase the cost of freight and reduce the brand's value. The impact of the risk can be lessened by being aware of global supply chain hazards.

3. Cyber Risks

Cyber risk is always at the top of the list of many concerns of risk management. As work from home became the new norm there is a higher risk of employee exploitation because there is less device management. According to Forbes, people who work from home are more vulnerable to hacking than those who work in offices. Home connections are less protected, and the number of online tools for teamwork and productivity is growing. These programmes frequently have weak login security settings. The popularity of remote teams has also hindered the adoption of new technology, potentially opening more security holes for businesses.

Prioritizing threats through cybersecurity risk management is a strategic approach. Organizations use cybersecurity risk management to make sure the most serious threats are dealt with quickly. Based on the potential harm that each danger could cause, this method aids in the identification, analysis, evaluation, and mitigation of threats. A cybersecurity risk assessment aids businesses in identifying their main goals and the pertinent IT resources needed to achieve them. It involves the detection of cyberattacks that could have a bad effect on these IT assets. The organisation must assess the likelihood of these assaults happening and specify the potential effects of each attack.

4. Fraud Risks

Due to the rise in fraudulent activities, most businesses do not flourish. Consequently, for an organisation, fraud detection is crucial. Fraud risk includes any unforeseen loss, whether it be material, financial, or reputational, because of fraud by an internal or external actor. The effects of fraud can be financial harm brought on by theft, embezzlement, or other financial crimes. It also includes damage to a company's reputation brought on by service outages, the leak of private information or client data and losses due to any fraudulent events.

A fraud risk assessment is crucial to assist businesses in recognising both internal and external risks, evaluating the efficacy of any mitigation strategies, prioritising new investments, and highlighting areas that require improvement to help strengthen the organization's overall security. Businesses can lower their risk of loss from financial crime and fraud by establishing a framework for fraud risk management. To create a strong anti-fraud framework, many businesses hire or engage internal audit and risk management experts.

5. Labour Shortages

Labour shortages due to the surge in early retirements, ageing workforce, self-employment options etc. have intensified the challenges in delivering business projects on time, meeting customer expectations, supply chain interruptions, and many more. Risk managers must be aware that, despite being a significant trend that affects the entire economy, the labour shortage is having a diverse impact on various businesses. As a result of the labour crisis companies is exposed to a variety of hazards from workplace accidents caused by undertrained or overworked employees.

6. Skill Gaps

After the introduction of a new generation of machines, a sizable proportion of competent production workers might not have the necessary abilities. The capacity to meet customer demand will be impacted by the skills gap, which needs to be closed as soon as possible. There are not enough skilled individuals in various industries to fill these positions resulting in a skill gap. A skill gap is defined as a fundamental disparity between the talents that a company demands of its employees and the skills that prospective new hires possess. Lack of skills makes it difficult for people to obtain work and the companies struggle to find adequately skilled personnel to run the business.

Skill gaps happen for several reasons like automation, new technology, social movements, remote work and the gig economy. As the way we do business changes, so do the skills an employee needs and an employer’s value. The speed at which the business landscape has changed has led to a higher prevalence of skill gaps in the workforce. Technology is especially susceptible to skills gaps.

7. Compliance Risks

Regulatory non-compliance occurs when an organisation fails to comply with the policies, standards, regulations, or laws relevant to its operations. The consequences of regulatory non-compliance can be costly. Worker injuries and deaths, property damage, and loss in production are just a few examples. Even though compliance improves efficiency and protects businesses from heavy penalties, most companies continue to wrongly view it as an operating cost rather than an investment. What we see, over and over, is that businesses that ignore the importance of proactive compliance still end up paying for compliance– only it is through penalties, reputational issues, and product delays. Robust compliance programs are hard and expensive. However, a sporadic or non-existent compliance program is far more damaging. To stay competitive in an international, complex, and evolving market, your organization must ensure ongoing compliance.

Summing Up

Risk assessments require more than a simple checklist. Reviewing the fundamentals is vital, but risk management also must identify any gaps and find out what the teams are lacking to figure out what they don't yet know. To find every problem, make sure your risk assessment process includes procedures to investigate and probe for potential problems you aren't even aware of yet. Depending on the nature of your firm and sector, the actual threats you include in your risk assessment may change.

Aurex Offerings

Aurex is a unique plug-and-play ecosystem that gives you a greater degree of assurance over your complex, multifaceted organization employing Audit & Analytics capabilities. The core purpose of Aurex is to help identify the organizational risks proactively and in real-time and report to your enterprise’s Board and Management for mitigation. The Risk Management module of Aurex is comprehensive and effective in that it lets you identify all the risks and empowers you to take timely actions. Get in touch with us: https://www.aurex.ai/about