Introduction

Risk management is an emerging and critical management field in companies. Risk managers are responsible for identifying possible risks to a company's smooth operations and protecting the company from the onslaught with necessary countermeasures. Identifying risks can be a daunting task if the company is working in a new industry where there is little risk analysis. The lack of risk modules makes such work rather harder for a while. Risk analysis can be even harder for companies that operate in a variety of cities or countries. In such cases, measuring risk becomes a challenge. Multinational companies operate in different countries amidst different cultures and under different regimes. As every nation has a different set of laws and regulations, this can add complexity for risk managers in their assessment. The lack of standard risk assessment templates and procedures can result in the risk manager starting from scratch.

In this article, we will discuss some popular, and some overlooked risks for businesses.

8 Challenges for Risk Managers

1. Pandemic-related government policies

Everyone has had enough of the words COVID-19, pandemic, and lockdowns. Humanity as a whole wants to forget it as a nightmare and start a new life. This is because the problems that these words cause in people's lives are numerous. However, even though people don't want to hear about this anymore, the long-term impacts of the pandemic on several industries will continue to play a significant role in the near future.

First among the negative impacts is the crumbling economy. Governments are trying hard to hold together the economic structure of the nation with strict laws and policies. Some of them are good for business and some are not. These less desirable restrictions and policies can have a significant impact on a company's long-term growth and survival in the country. Several nations, like the USA, UAE, and Israel, have significantly stopped immigration and are using their own talent pool to build their workforce (Source: Americanbar). In other countries, like Canada and European countries, immigrants are out-populating native citizens. The pandemic has been a tipping point for several countries.

As a result, new immigration laws are being implemented, whether in favour of or against immigration. Some countries are at the risk of losing critical workforces to these laws. European countries in particular need blue-collar workers, who are critical for businesses. Other countries face threats due to the heavy influx of immigrants. It puts the economic condition of some poor countries in jeopardy.

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2. Talent acquisition and retention

Talent acquisitions and retention is one of the major challenges for HR managers. The Great Resignation has left a legacy among companies, HR departments, and the workforce. It also sheds light on important issues. Keeping top leadership positions open can cause business disruptions. Likewise, losing a critical workforce in this competitive era hinders company growth. Moreover, finding the right talent for the vacated post causes even more losses in terms of time and effort. Again, training the newcomer about company policies, tools, and culture adds to the workload of HR professionals. In combination with other Human resources challenges, this can cause severe business disruptions and create a major operational risk (Source: Forbes).

3. Cyber security threats

Due to the high dependency on the internet, companies are always under the constant threat of data breaches. Hackers nowadays are sophisticated enough that there is virtually no system in the world that is safe. Hackers even infiltrated the uranium enrichment facilities of Iran, thus hindering their possibility of acquiring atomic bombs. It ruined one-fifth of Iran's nuclear centrifuges (Source: Wikipedia).

Cyber warfare is not only a threat to countries but also to companies of all sizes. Ransomware is a notorious software that locks down critical data servers of companies with a password. The company needs to pay the hackers money to obtain the password and unlock their critical data.

Every year, data breaches make up a large part of cybercrime. The company's reputation is on the line with cybercrime. Corporate email IDs with passwords, employee biometrics, critical healthcare data, credentials of online subscription services, and websites are all hacked and posted on the dark web for sale (Source: CSOonline). As the payments are made through heavily encrypted cryptocurrencies, it is next to impossible to track down the culprits. Ultimately, such hacking and leaking of private information rob the company of customers' trust and loyalty. This is even more serious in healthcare-related data breaches. Customers often leave the victim companies, never to return.

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4. Political unrest between nations

Even after the two bloody wars, the world had not become at least relatively peaceful. Even today, Russia is at war with Ukraine, and China is threatening the world with its massive military buildup. Though the war is being fought between two countries, its impact can be felt throughout the world. The war between Russia and Ukraine resulted in major economic changes in many countries. This is just an example of the effects of geopolitics on businesses. Apart from the loss of personnel, structures, and major investments, Ukrainian businesses have been closed since the beginning of the war without any assurance or hope of the situation coming back to normal.

The economic boycotts on Russia and Russia's retorting economic measures have inflicted heavy losses on banks and money lenders and disrupted supply chains to and from Russia and Ukraine (Source: APnews).

If warfare is one thing of concern, other types of unrest are also threatening the world in many cases. Internal power struggles, religious persecution, and kidnappings of foreign employees are all commonplace in many countries. All these things constitute ease of doing business in many cases. Propaganda, suppression of freedom, censorship, and restrictions on foreign businesses or employees can all lead to business losses. Countries with corrupt governments, power-hungry politicians, military-controlled puppet governments, and crumbling societies due to poverty, war, or calamities are always considered risk factors for businesses.

5. Climate change and its effects

Climate change is a major concern for risk managers. It is not only because of the operational threats of the consequences of climate change, but also the possibility of legislation changes due to it. Climate change is the change in weather patterns due to exceeding levels of greenhouse gases. Most of these emissions are created by humans through factories, automobiles, and extraction. As a result, the planet is warming considerably, which is causing harsh weather conditions across the planet. Because the polar ice caps are melting, port cities are at risk of sinking. Harsh monsoons and snowfalls are causing supply chain disruptions through air, land, and sea routes. Without a stable supply chain, virtually every other industry is at the risk of business interruptions.

According to McKinsey, supply chains can be disrupted due to harsh storms, heavy rains, and natural disasters due to climate change. This can cause disruptions in the supply of critical components like semiconductor chips, which are the backbone of electronic products. All these constitute business, reputational, and operational risks for many companies.

If climate change is concerning for risk managers, so are laws that might be rolled out after the effects of climate change become a major concern for governments. Vehicle scrapping laws can cause major investment losses for businesses and e-commerce companies that have invested in or have tie ups with logistics vehicles that comes under scrapping laws..

This is even more concerning for shipping companies that have invested a major portion of their budget in building ships. Shipbuilding is a very time-consuming process, which at times takes up to a decade. If a new climate law rolls out later in the development stage that outlaws the ship under construction as risky, the whole investment, time, and efforts can go in vain. Apart from supply chain disruptions and investment risks, climate change can pose serious health and safety risks for the workforce. Heatwaves, heavy rainfall, snowfalls, landslides, and storms can all put the lives of workers in jeopardy. In such conditions, even everyday office work will become a risky endeavour.

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6. Corruption

Corruption is an underrated risk for businesses. In most cases, it is like walking on a double-edged sword. Corruption creates a situation where businesses are hindered if they do not cooperate with corrupt officials and are at the risk of being charged with corruption if they are caught. Corruption affects smaller and medium-sized companies more than large multinational corporations. Virtually no industry is immune to corruption. However, some industries, like construction and logistics, face the worst of this social evil. India's trucking industry pays 6,148 million USD per year in bribes (Source: Economic Times).

This corruption is also responsible for major productivity and time losses on the highways. A considerable amount of time and money is spent on tolls and checkpoints to bribe and negotiate with the local administration.

One major example of this operational risk for industries is logistics. Corrupt governments, resistance, terrorist organizations, and the underworld can all pose serious operational and business risks to most companies around the world. Moreover, corruption in other businesses or administrations can indirectly affect businesses. As an example, corruption in government can lead to subpar infrastructure that can affect the logistics industry.

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7. Misinformation on social media and reputation risk

In the era of social media, news and information are like wildfires. The capability of the internet and social media to transform individuals for good or for bad is unmatched by any other medium.

This is why, nowadays, you can hardly find a business that does not have and maintain a social media presence. While the requirements and results for this social media presence vary from company to company, it is no surprise that social media can be a catalyst for businesses. The IT giants like Google, Facebook, and Twitter have created business fortresses due to the demand for news and information, whether public or personal.

As good as the internet and social media are for good intentions, they also have a dark side. Fake news and misinformation are rampant on the internet. It has become so numerous that companies, governments, and law and order departments have established fact-checking teams and services. To stop the spread of fake news, some countries have introduced draconian laws against individual privacy in the guise of internal security.

This, however, poses a major risk to companies' reputations due to fake news or information. For example, recently, a day before CES convention 2019, a fake video of an autonomous Tesla car crashing into a robot prototype at the CES convention was uploaded on Twitter. The video went viral, causing Tesla's stock to plummet throughout that day. Tesla quickly recognised the threat and disproved the video as fake. It also made a statement that they still have not produced a completely self-driving car. If it couldn't do that, Tesla's stock would have been history. Keeping an eye on social media platforms is crucial for all businesses (Source).

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8. Credit risk due to low income, rising poverty and debt, and inflation

Credit risk is a major concern for banks, microfinance, Fintech firms, and e-commerce merchants. This is a major risk factor after the pandemic. As the pandemic was responsible for millions of job losses during its peak season, it is a direct contributor to a financially unstable world. Add the recent war between Ukraine and Russia, and the economic states of the countries have been in shambles.

We don't have to look as far as these developed countries to understand the credit disk. Due to the employment loss, many families are living in poverty at levels higher than pre-pandemic levels. The lockdowns made rich individuals richer and poor families poorer. This wealth gap has increased in many countries, causing major changes in economic patterns. Debt is a major concern for countries and families alike. 

If we add inflation and rising prices to the equation, credit risk can become a major risk factor for financial firms. Abnormal fluctuations in material costs or the stock market can result in business losses and thus cause credit risk if the business has any loans. Risk managers need to be vigilant about these credit risks.

Conclusion

Risk management needs industry experts with a whole new level of knowledge. It is not enough for risk managers to have industry experience; they must also be vigilant enough to detect risks from all over the world. One can do this through daily analysis of news on politics, legislation changes, wars, and financial stability. Risk managers also need to keep an eye on their company's brand name on social media. Fake news can exponentially increase the reputational risk of a company.

SNATIKA offers a prestigious UK Masters in Risk Management to senior risk managers. Our dual qualifications, ISO 9001:2015 certified  admission and academic delivery processes, and flexible learning schedules can take your career further. With a learner base from around the world, SNATIKA is the leading global destination for online Masters Degree programs from the UK.

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