Are UK businesses prepared for the operational risks of 2020?

Global businesses experienced a number of political and economic shockwaves in 2016, with Brexit and the US presidential election among the surprise results that created uncertainty across markets worldwide.

 

Faced with these challenges, risk managers in the UK have admitted that preparedness for emerging operational problems could be improved. In fact, a recent DuPont survey, conducted by Management Today, revealed that over 45 per cent of British businesses feel their risk management is insufficient.

 

But what are risk managers biggest fears? And how can they build better defences against the hazards they encounter now and in the future? Let’s take a closer look at some of the survey’s findings and analyse what impact they could have on risk management departments over the coming three years.

Current concerns

Risk managers were asked what top three factors are affecting their businesses at the moment and, perhaps unsurprisingly, ‘uncertainty in the markets’ ranked highest with 57 per cent of the vote.

 

Our recent market reports revealed that Brexit has not quite had the impact that many organisations predicted, but the true outcomes will not be known until Article 50 is officially triggered. Until then, uncertainty is likely to remain across a number of sectors.

 

Other risks that professionals are currently facing include:

• Increasing competition
• Failure to innovate and meet customer demands
• Damage to reputation and brand
• Regulatory and legislative changes

On the regulatory front, corporate governance departments must prepare for several upcoming changes, such as MiFID II, the General Data Protection Regulation and the so-called Basel IV standards.

 

Most of these regulations won’t be introduced for at least a year, but many businesses must begin implementing systems and processes to cope with new demands as quickly as possible to ensure they are ready.

Looking to the future

Fears over Brexit are not just confined to the present – the UK leaving the EU was listed as a top-three concern for businesses when asked what risks will be most relevant to their operation in three years’ time.

 

We recently covered how finance industry contractors could benefit from the uncertainty surrounding Brexit, and employers may well be considering interim staff as an option over the coming months and years.

 

Organisations’ top fear, however, was an economic slowdown. Recent figures from the Office for National Statistics revealed a surprising 0.6 per cent jump in GDP growth for the UK in the three months after the EU Referendum.

 

However, experts have predicted a rougher path for Britain in 2017. Liz Martins, UK economist for HSBC, told the Financial Times that investment and consumption would fall, while inflation is set to eat away at real wages.

 

Noble Francis, economics director of the Construction Products Association, said: “Once inflation rises and real wage growth slows considerably, the key driver of growth in the UK economy will be highly constrained.”

Preparing for change

According to the DuPont research, only 54 per cent of businesses believe they are ‘good’ or ‘very good’ at managing operational risk.

 

Only 20 per cent of respondents said their organisation had an enterprise-wide risk identification process, with 30 per cent admitting they never measure their risk management effectiveness.

 

The lack of senior risk officers was noticeable among many of those polled. Just 5.7 per cent claimed to have a chief risk officer, and only nine per cent planned to create such a role in the future.

 

“Operational risk management has a wider role to play than mere damage limitation or improving workplace safety,” said Mieke Jacobs, global practice leader risk management, DuPont Sustainable Solutions.

 

“If used correctly, operational risk management can significantly help in establishing a cohesive company culture that has a positive ripple effect on productivity and quality as well.”

Strengthening risk management

The UK may be approaching economic hardship in 2017 and beyond, with the threat of Brexit still overshadowing some business decisions.

 

Many companies appear to lack risk management expertise, with 66 per cent of respondents to our Market Report survey claiming they are currently under-resourced in their risk departments.

 

However, recruitment remains fairly stable across risk management – only 16 per cent of organisations don’t expect to hire new professionals in 2017, just a slight fall from 17 per cent last year.

 

Clearly, employers are keen to find the right staff. This is supported by the DuPont study, which ranked the failure to attract and retain key employees as the sixth biggest risk to their operation.

 

Strengthening risk management departments over the coming months could help companies tackle an uncertain future, but they may need all the help they can get identifying candidates with the necessary skills and experience.

 

Our 2017 Market Report combines our review of the prevailing conditions in the risk management recruitment market together with the results of our latest employer survey.

 

Image: Olivier Le Moal via iStock