Why short-term approach risk management is hurting Australian businesses

In today's complex business environment, directors must navigate an intricate landscape of seen and unseen risks.

Presented by FM

Australian businesses are facing a growing wave of “unseen risks” with more than 70 per cent of executives surveyed reporting revenue or profitability losses due to unexpected risks.

“Unless you’ve got quality data, making an informed decision about where to invest capital is difficult,” says Andrew Stafford, senior vice president and operations manager at FM Australia and New Zealand.

Once the risk appetite is clearly defined, directors must delve into identifying key potential risks that may not be immediately apparent. This involves a comprehensive exercise of risk discovery, which can reveal a multitude of issues requiring prioritisation.

At this point, the integration of rich data becomes indispensable. Data-driven insights enable directors to prioritise risks effectively, balancing short-term needs with long-term survival strategies.

The process is not solely about addressing immediate concerns; it’s about building resilience for the future. Directors must overlay data — for example flood maps or bushfire statistics — with facts and business knowledge, constructing a holistic picture that can be used to guide strategic decision-making.

Getting ahead of risk

The ability of an organisation to identify, assess and manage risk varies depending on its needs. This variance can lead to disconnects between board expectations and ground-level realities, posing a significant challenge.

The current geopolitical and geo-economic climate adds layers of complexity to risk management — 55 per cent of those surveyed said most risks impacting their organisations were unexpected, and a quarter confessed to not being sufficiently prepared. Directors must contend with issues such as tariffs, supply chain disruptions and cybersecurity threats. This environment often biases decision-makers to immediate concerns, overshadowing long-term threats like climate change.

In fact, despite Australia’s high climate risk, it ranks highest in the Asia Pacific for deprioritising climate-related risks, with 24 per cent of businesses considering them low or medium priorities.

FM’s extensive network and resources offer a wealth of data and experience, providing valuable insights into the diverse risks faced by different industries. “We have a rich understanding of what different businesses experience,” says Stafford. “For example, a power generator operating in Australia will be very different to a global manufacturing company based in Switzerland. The nature of the risks is slightly different, but we have a deep understanding of the business.”

Directors must adopt a sophisticated approach to risk insurance, leveraging data and expertise to navigate the multifaceted challenges of today’s business world.

FM’s new research report with The Economist, “Sight Unseen: Navigating out-of-sight risks”, highlights expertise to actively identify and mitigate the biggest risks to their organisation. “Businesses must align on prioritisation of risk, alongside using data to ensure resilience and long-term survival,” says Stafford.

Learn more on how AI can transform your board's efficiency and resilience.