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Understanding risk and resilience for a better future

Feb 16, 2023

The only thing that is certain is that uncertainty is everywhere. Every day brings a bigger and more complex set of challenges, novel problems to solve and unrecognizable sets of circumstances to ponder.

The world is changing at such a rapid pace. Keeping up, let alone resolving the complex problem of the day, is a painstaking process that can deplete otherwise astute executives of their mental energy.

When the pandemic subsided, everyone expected the resumption of some form of normalcy. What we got instead was a new set of concerns — rising interest rates, talent shortages, supply chain and climate change risks that were unprecedented until now. Maneuvering the post-pandemic world is proving to be as great a challenge as the COVID-19 pandemic itself.

To build a more resilient future, financial services organizations must move away from a reactive risk management mentality to a more rational, long-term approach.

What is risk?

Risk is defined as “the possibility that events will occur and affect the achievement of strategy and business objectives,” according to the Committee of Sponsoring Organizations of the Treadway Commission.

Every financial services organization faces daily, countless risks. In order to continue to operate and be successful, it must accept risk as an inevitability.

The key is knowing the correct amount of risk to take. But we can only make that determination when we understand the risk.

In a recent survey conducted by the Federation of European Risk Management Associations addressing corporate resilience, more than half of the respondents said the pandemic made understanding risk and resilience more important to their organization.

In the same survey, two-thirds of the respondents said that resilience was central to the strategic process and that risk functions and executive teams played a larger role than strategy teams in resilient organizations. Most importantly, more than three quarters indicated that improving the risk culture and integrating resilience into strategy were important actions to take.

At the beginning of the pandemic, people isolated because no one fully understood or could quantify the amount of risk they would take by leaving their homes. As time went on and understanding of the risks increased, so did the ability to process the risk they faced and make decisions accordingly. In so doing, people became more resilient.

What is resilience?

Resilience is defined as the capacity to recover quickly from difficulties or the ability to bounce back when faced with adversity.

Resilience is not really proven until tested by adversity. In the workplace, resilience enables an organization to not only continue with normal business operations but to also learn more, progress at a quicker pace and flourish.

Often, resilient organizations go well beyond the business-as-usual mode and achieve greater success than expected.

How risk and resilience go hand in hand

Locating and understanding risks helps educate organizations so that they can make a strong plan for the future. It allows an organization to increase resilience by being proactive, not reactive, and in better control.

In Wipfli’s recently published State of the Banking Industry report, uncertainty was noted as a key theme. But it was also noted that, despite this, financial institutions were confident in their futures.

Four strategic areas noted for 2023 were:

  1. Talent management
  2. Digital customer engagement
  3. New revenue streams
  4. Digital efficiencies

While all of these are lofty strategies, their success lies in the careful planning for the possible risks associated with, or in spite of, their implementation. Organizations that are risk aware are vastly more resilient than those who choose not to see the risks as they execute strategy.

How to face uncertainty

You cannot eliminate uncertainty. Instead, meet it head on with a refreshed mindset, applied in a more strategic manner.

Specifically, you want to look toward understanding the risks which lie on the road ahead. Those are the risks that are beyond today — the ones embedded in your organization’s strategy.

Risk managers have to evolve to see a broader focus. They need to look beyond the previously identified well-defined, short-term risks toward risks involving broader topics such as environmental, societal, geopolitical and financial volatility.

Consider the following in your journey:

  1. Accept that risk is inevitable and that it should be understood, not avoided.
  2. Build a broader picture of risk.
  3. Understand that resilience is a leadership orientation and risk is a function of that orientation.
  4. Build agility through rapid risk identification. (It’s a natural outcome of a risk-aware culture.)
  5. Embrace a more forward-looking risk stance.
  6. View risk as a value that creates more positive business outcomes and a more resilient organization.

No one can predict the future with certainty; however, understanding your risk profile through an enterprise-wide risk assessment — which aligns strategy and risk — will go a long way to building a resilient future.

How Wipfli can help

Let Wipfli help your financial services organization better understand and manage risk. We provide you the knowledge, technology and support you need to become a more forward-facing, strategic organization.

Contact us today for more on how we can help.

This article is part of our series on how your financial services organization can use technology to build resilience. We cover the latest technologies and strategies to improve efficiency, engage customers and increase revenue in any economic condition.

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Karen A. Mitchell
Senior Manager, Risk Advisory Services
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