Geopolitical risks are driving significant losses, and potential gains, for organizations. Risk managers have the motivation and the means to influence geopolitical risk strategies.
Nearly three-quarters of respondents to our latest annual Political Risk Survey (72%) reported losses driven by geopolitical risk, with some reporting losses in excess of $50 million. These findings suggest more organizations could benefit from the proactive management of geopolitical risk management.
Current geopolitical risk strategy is dominated by government affairs departments where teams may not have the skills necessary to effectively identify and prioritize risks. Businesses today need to mitigate, transfer, avoid or accept geopolitical risks and the scenarios where organizations might pursue gains, highlighting an urgency for risk manager roles.
Below, we delve into five reasons why you, as a risk manager, need a seat at the geopolitical risk strategy table to better protect and grow your organization.
01
Your organization needs to look beyond government affairs specialists
Traditionally, geopolitical risk discussions have been the domain of government affairs departments. However, the complexity and scope of geopolitical risks today demands a more integrated approach.
Many companies are grappling with the increasing frequency and severity of geopolitical risks. These risks range from economic sanctions to political instability affecting market entries, operations and supply chains. Your expertise in identifying, assessing and mitigating corporate risks is crucial for developing strategies able to safeguard your organization's interests across the globe.
As a risk manager, you can also bring skill sets that can assess geopolitical risk thoroughly and in line with the overall strategic objectives of the business.
02
The business could be vulnerable if it sidelines risk management in geopolitical strategy
Excluding risk management from geopolitical discussions can lead to inadequate risk identification, a siloed approach to crisis management and inefficient resource allocation. Such oversights can result in significant financial losses and missed opportunities.
For instance, without your input, your organization might fail to recognize the full spectrum of risks associated with entering a politically volatile market. This could lead to unexpected challenges the business could have mitigated or avoided. Without risk management perspectives, your organization may also fail to foresee potential offsetting gains from a given geopolitical risk driver, something you may have identified through using an enterprise risk management (ERM) framework. We'll look at ERM frameworks in more detail below.
03
You already have the tools to manage geopolitical risk effectively
You hold an array of tools, tactics and frameworks that could prove indispensable to your organization in managing geopolitical risks effectively. These include ERM frameworks, which foster a proactive risk management approach to safeguard your organization from complex risks, as well as quantitative risk assessment models and scenario planning. By applying such tried-and-tested risk management methods and data-driven insights, you can help the business make more informed decisions that balance risk with opportunity.
04
You can bridge the communication gap with government affairs
To enhance your organization's strategic approach to geopolitical risks, you may need to start speaking the language of government affairs. This involves understanding government and political affairs stakeholders' key concerns and terminologies, which will better enable you to contribute to discussions and strategy development.
Familiarize yourself with the current geopolitical landscape, regulatory changes and their impact on your industry and organization. Equipped with these perspectives, you can advocate for a unified approach to managing geopolitical risk that integrates your risk management expertise with the work of government affairs.
Other corporate functions, such as marketing, operations and supply chain are likely to have similar communications gaps with government affairs. Your ability to lead collaborative efforts can deliver better risk governance and a much more informed and effective response to geopolitical challenges.
05
You can demonstrate the value of risk management in geopolitical contexts
By preparing case studies or scenario outputs, you can show where your involvement either already has, or may have, led to better geopolitical risk mitigation and decision-making. These outputs can emphasize the importance of proactive risk management approaches that anticipate and prepare for potential geopolitical disruptions, as well as your ability to quantify risks and the impact of mitigation measures.
You can also consider showing how ERM frameworks can foster a risk-aware culture that includes all departments.
As geopolitical risks continue to pose significant challenges to organizations, your role as a risk manager may be increasingly critical, likewise your ability to lead on holistic and collaborative risk management.
By leveraging your expertise, tools and strategic insights, you can ensure your organization is well-prepared to navigate the complexities, making you an indispensable part of geopolitical risk discussions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.