Firestorms, epidemics and escalating conflicts
It is tempting to refer to the start of 2020 as biblical. Firestorms, epidemics and escalating conflicts – this is already shaping up to be the year of external risks. External risks have always influenced agendas, yet they are now becoming enormously prominent and impactful. Those risks are already hurting fragile situations.
A clear example of this is Japan’s recession issues. The country recorded negative growth due to a sales tax it raised late last year. Despite the offer of rebates and other incentives, the tax hit consumer spending and Japan’s GDP shrunk.
But that was a risk it could manage and expected. Then the coronavirus outbreak began in China. Though the two countries have a tense relationship with each other, Japan attracts millions of Chinese tourists every year. That influx has dried up nearly completely as China clamps down on travelling. Analysts expect this slump to have a very negative impact on Japan’s struggling economy.
One disease in one province has already damaged the economy of a different country. This is the downside of a global economy. If one part of the world sneezes, the rest catch a cold. But don’t flee for the hills. The global economy is a massive positive, yet also a sensitive ecosystem. It needs to be respected, and that means taking the risks it can create seriously.
External risks are hard to predict or manage. But nothing prepares you for the unknown as being prepared overall. This is why integrated risk management systems (IRMS) have become so potent. IRMS creates confidence that you know what is happening inside your organisation, and it can incorporate outside information to show how you are positioned against external factors.
These aren’t just viruses and catastrophic fires, volcanoes or climate change. External factors can involve your supply chain, market dynamics or consumer sentiment. In the past, these metrics were hard-to-impossible to introduce into risk management. But they are part of IRMS‘ fabric.
2020 started with the stark reminder that we can’t control everything. But we can prepare for anything once we have a clear picture of all the risks we face. So don’t panic. Start investing in the future by enhancing your ability to respond to it.