Adopting A Phased Approach To Global Risk Management
Cyber-crimes, shifting legislation, deepening social and political polarization, and the adoption of the potentially disruptive technologies of the Fourth Industrial Revolution make for an ever-changing world of risk.
And according to the World Economic Forum’s Global Risks Report 2017, emerging technologies face inconsistent regulation: “Some are regulated heavily, others hardly at all because they do not fit under the remit of any existing regulatory body.”
Compounding matters in today’s global marketplace, several factors make it difficult to develop and carry out effective global risk management processes. To start, most companies have difficulty bringing together disparate, unstructured data necessary to evaluate and manage risks. Data is often incomplete and there are no best practices for its collection, storage, and sharing. Each country where a company does business tends to collect separate data and sets its own decision rules. This creates data silos and makes it difficult to transition to a set of standards that can be adopted across the entire organization.
In general, good global risk management practices require that companies have data in common formats, with consistent field names and definitions, and the ability to archive data over time to make it useful for predictive analytics. Because risk factors change all the time, businesses must adopt a phased approach to global risk management that evolves to address emerging conditions.
Elevated Importance of Global Risk Management
Ever-growing economic complexity means companies face an ever-increasing number of risks that can significantly impact their business. Without global risk management that applies predictive analytics to the best data, a business cannot possibly lay out its objectives for the future.
Which competitor will exit the market next year? Will supply chains be disrupted due to a change in political leadership? What’s the best market in which to open a new facility? These questions and more often need to be evaluated and the risks determined before any actions can be taken.
The rising importance of having a robust global risk management strategy was noted in recent surveys. In one, 60 percent of organizations acknowledged that they face an increasing number of risk issues. However, less than 35 percent have a formal global risk management program in place and 70 percent would not describe their risk management oversight as mature.
The Right Approach
All risk management insight must be fueled by the best data available to make the smartest decisions.
A recent Dun & Bradstreet webinar led by Frank Cirillo, Sr. Consultant Advanced Analytics, Dun & Bradstreet and business partners at Xerox Corp – Jack Scarpelli, VP North America Credit Risk Officer, and Sebastien Lacraz, Global Risk Analytics Director – discussed the issues facing companies trying to improve their global risk management processes. The speakers highlighted the growing trend toward globally consistent risk management. The session also explored the barriers businesses face when trying to assess global risks and the steps to overcome those barriers.
A main point of discussion focused on the need for businesses to shift from decentralized, judgmental, manual procedures to a centralized, statistically based, automated process. To accomplish this, Dun & Bradstreet recommends an approach focused on five key areas, including:
- US small business completeness improvements
- Predictive improvements
- Global score capability improvements in top markets
- Enhanced custom analytics capabilities
The bottom line is that companies cannot execute a global risk management plan until they get the data right. Specifically, businesses need a clear path that brings together internal data, external data, decision systems, and expertise. They need a way to bring together all the critical data for assessing global risks in one place, and they need insightful risk information that complements existing business data in order to make better decisions.
There are a couple of ways Dun & Bradstreet can help in these areas. First, D&B Global Archives is a central repository in which a monthly archived view of key risk data elements is stored for use by businesses interested in model development and other analytical activities.
The data covers 25 countries and includes 240 Global Archive data elements, which cross ten data categories:
- General information
- Predictive analytics
- Legal and significant events
- Professional contacts
Complementing this data, businesses can use D&B Global Business Ranking (GBR) to measure risk levels of customers, prospects, suppliers, and business partners – worldwide. GBR provides actionable foresight on all active businesses worldwide. This multidimensional “relative risk ranking” tool predicts the likelihood that a company will become inoperable, inactive, or dormant in the next 12 months. GBR provides a consistent score that ranks businesses uniformly across markets. So a score of 9, for example, means the same in China that it does in Chile.