Emerging, Strategic and Material Risk

We have a habit of confusing the unprecedented with the unlikely.  Al Gore 

The big problem with risk management

Without good foresight and preparation many feel well equipped to understand and respond to unprecedented or new version of risks.

While traditional risk management processes give some of comfort that things are broadly under control, but those who read widely will be aware of structural shifts that are not reflected in their risk profiles, and that there are great big gaping holes in their risk registers

As such, Directors and Chief Executives often feel that all of this effort in risk management is turning the handle but providing limited foresight.

Strategic risk

Strategic planners call them external shocks.  Resilience practitioners call them discontinuities.  Economists call them corrections. Taleb calls them Black Swan events.  Greenspan calls it the age of turbulence. Wucker calls them Grey Rhinos.

Whatever you call them, an understanding of emerging and strategic risks is critical to leading any organisation. 

Strategic risk is a separate class of risk in it’s own right.   

They are the risks and opportunities which redefine the competitive landscape and the external environment in which an organisation operates.

If well anticipated, they present great opportunity.

If not, they often cannot be managed within your normal operating parameters

In these cases, value destruction can be significant and irreversible.

Identifying and assessing emerging material business risks (EMBRs)

For many organisations, their risk processes operate well at managing the ‘known knowns’.

But all organisations have blind spots.

Working with our partners from the Resilient Futures Network, we run a structured model which considers changes in structural conditions and the relationships between those structural changes to focus on increasingly likely strategic risks.

We focus on the risks which are likely to become your material business risks in the near to medium term.

We help organisations to anticipate these and react strategically while they still have the time to do so.

We also look at risk trends across multiple clients, sectors and industries to identify trends and signals which are strong for some, but not yet obvious to those outside their industry.

Emerging risk capability

We also help organisations to develop their own capability in-house and in their leadership teams.

By using proven and practical models, we help organisations to developed a shared understanding of emerging conditions, prioritise which ones are most important to them, and attune themselves to the strong and weak signals for these.

This helps organisations to know when to lead, and when to get on board to prepare for change. 

Our process ensures that they are ‘principle 7 compliant’ in line with ASX Corporate Governance Council recommendations but more importantly that they are well placed to take advantage of emerging changes.

How we can help

TDA has been researching, investing and working in this space for many years. We:

  • Help organisations to make sense of emerging and interconnected structural shifts, and how to turn these from strategic risks into strategic opportunities
  • Help organisations to make sense of unprecedented risks and determine which ones are becoming increasingly certain
  • Provide detailed briefings on each of these structural shifts
  • Assist to assess and develop capabilities in organisations to assess strategic risk on an ongoing basis.

Further reading

We have written and taught extensively on this topic and worked with a small handful of organisations to develop their internal foresight capability. 

Please read our relevant articles and presentations below and contact us when you are ready to take the next step.

Failing to keep pace with change – The greatest risk of all

Black swans, turkeys, ostriches and other Christmas poultry – a tale of strategic risk

A look back – the top 10 risks for 2010 – how did we go?