Rethink risk

Our 10-point Agenda for Action to help organisations rethink risk

Risk is unavoidable. Its ability to disrupt our daily lives and create uncertainty has been brought into sharp focus. The priority now is to change our approach to risk so we can respond confidently to the challenges ahead and uncover opportunities for growth.

This Agenda for Action brings together insights from 12 months of PwC research in collaboration with leaders from across different sectors and industries. Our key findings are that we have to:

  • be forward looking;
  • be transparent;
  • be resilient; and
  • be inclusive.

We’ve created a 10-point plan underneath these findings that sets out practical steps for helping organisations rethink risk. It emphasises the importance of having a collaborative, transparent response to societal challenges such as climate change, cyber risk and economic inequality, so that together we can deliver sustained outcomes that benefit us all.

12 months of research in collaboration with leaders from across different sectors and industries

Stephanie Bruce,
abrdn plc, Rethink Risk Steering Group Chair

Looking ahead at emerging risks and future shocks - and there will be more - working out how organisations can benefit from their talents and technologies is so important.
abrdn plc
Guy's & St Thomas' Foundation
HM Government Finance Function
Hotel Chocolat
Incorporated Society of British Advertisers
Palantir Technologies
Yorkshire Water

Be forward looking

Recent events have underscored the need for organisations to be more proactive in scanning the horizon for risks, including everything from industry regulations to systemic global disruptions. A range of new threats is now emerging, many of which have no precedent, so we can't use past events to tell us what comes next. Instead, you need to think about what you've learned in the past about handling major disruption and use this to prepare a flexible response to future threats.

To become more forward looking, you need to consider a wider range of potential threats, no matter how far-fetched they seem, combined with the right data and insight to understand how different risks are developing, their likelihood, the potential impact and how your organisation needs to respond. This will enable your organisation to make confident decisions as you prepare to respond to risk and uncover opportunities for growth.

Action 1:
Reassess known and new risks combining short- and long-term views

Static risk registers alone, updated annually, aren’t fit for purpose. You need to have continual conversations around risk, bringing in different datasets and diverse perspectives to challenge the status quo.

It requires a joint focus on the burning issues keeping those leading your organisation, your employees and your customers up at night, coupled with a longer term view of systemic trends and risks your organisation may need to respond to. Becoming focused too much on one or the other means you risk being caught on the backfoot, rather than confidently adapting to new threats and opportunities.

“We all tend to suffer from proximity bias. Individual executives will be worrying about income for this quarter or the latest complaints or what's troubling them in their diary for the next day.

The big change for me is where you spend more time thinking years ahead, the sorts of things that could really hurt or damage a particular business or franchise, which may be very different to the things that are causing executive pain today. This requires new reporting that gives a sense of the prioritisation of short- and long-term risks.”

Gavin Smyth,
Chief Risk Officer at Nationwide

Action 2:
Invest in critical data and insight to proactively respond to changed, new and emerging risks

The ability to confidently navigate risk needs to be built on robust data insights. It enables you to begin modelling and quantifying risk, so threats can be prioritised and measured in financial terms. For example, our own research into public attitudes to risk shows that people are worried about the UK’s economic recovery and expect to have less disposable income over the next few years. What might this mean for people’s spending habits and the resulting impact on the economy?

Most of the data businesses need to start modelling and predicting future risks is already available, but it needs imaginative thinking coupled with investments in the right tools and skills to find tangible insights. For example, a manufacturing firm might use its operational data to mitigate ESG or supply chain risk by creating more responsible procurement practices, or a bank could use climate data to model how it should alter its mortgage lending in particular regions in preparation for extreme weather events.

By investing in these tools, you can combine the best in human ingenuity with powerful data insights, enabling you to respond confidently to emerging risks and opportunities.

“We're using data to understand customer pain points, which is particularly important as we go from being largely a big box out-of-town retailer, to having more new formats, including inner-city meeting points and a greater focus on digital channels. It means, as the world changes, we can better sense what our customers need from us, and make sure our business model evolves to meet those needs.”

Edward Martin,
Senior Product Manager, IKEA

Action 3:
Co-invest and share data across society to unlock insight on emerging and unknown risks for the good of all

Collaborative solutions must be built on an equal understanding of insights and data. This includes sharing expertise between industries, as well as investing in new platforms that can bring different sources together from your wider ecosystem to generate new perspectives, provide benchmarks, and track progress against different risks.

We can all learn from how the NHS coordinated its response to the pandemic. Faced with an unprecedented set of challenges, the UK’s health service used a new platform that pulled together data from across the organisation to track the spread of COVID-19, model courses of action and improve outcomes. Its data dashboards were used to manage oxygen supplies, allocate ventilators and manage stocks of PPE (personal protective equipment). It also used the platform to manage the vaccine roll out, including overseeing the complex supply chain, vaccine storage and PPE availability.

“The COVID-19 pandemic was a fast-evolving emergency that needed a data-driven approach to managing risk. Each day, the NHS had to make decisions about where to allocate life-saving equipment, supplies, and people to where they were needed most. The vaccines programme presented further challenges, from highly complex supply chain logistics, to operations across thousands of sites, in which risks had to be carefully balanced to get people vaccinated as fast as possible.

We worked with the NHS to integrate and clean data from hundreds of sources, providing a national-scale, single source of truth that thousands of staff rely upon to solve the challenges they face each day. Innovative security controls ensure data is only used for approved purposes while allowing users to collaborate in rapidly changing situations. This has helped the NHS to make better use of their data, manage risk effectively in near-real-time, and save lives.”

Joanna Peller,
UK Health Lead, Palantir Technologies

Be transparent

The pandemic has emphasised that you can earn or lose trust depending how you respond to the threats and challenges you face. There are numerous examples of organisations that have built better relationships with their people and wider stakeholders through authentic approaches and purposeful behaviour, even against the odds.

You must look at how a culture that supports transparency, particularly when it comes to identifying and addressing risk, can be embedded in your organisation, and celebrate the benefits this has in re-establishing trust among your people and in wider society. This will be crucial as we all respond to major challenges such as climate change and economic uncertainty, which will need trust and transparency to build accountability and drive positive behaviours.

Action 4:
Be transparent about risks and actions taken to address risk to restore and build trust

Transparency and accountability are key for making people feel bought into important decisions. And if they understand the reasoning behind a specific action or strategy, they are more likely to accept the associated risks.

For organisations, this begins with being open and accountable to employees and wider stakeholders, ensuring you have a communications plan that both keeps people informed and asks for their views. This approach must also include the way you report on areas where you need to make progress – such as pay gap reporting – and how you interact with regulators, particularly with sharper focus on risks such as data privacy and climate risk reporting.

“When we look at advertising, many brands now have a greater appreciation of the importance of trust and transparency. That has occurred in part due to the pandemic, but also the disruption to the media landscape and the remorseless rise of digital. Brands have certainly had to do a bit of re-evaluation of what they stand for, their behaviours, the value of their work and their business as well.”

Phil Smith,
Director General, Incorporated Society of British Advertisers

Action 5:
Set collective appetite for risk, opportunities those risks will generate and innovation

Our 24th Annual CEO Survey found that 89% of organisations were reassessing their risk appetite as a result of the pandemic, while separate polling found that a third of the UK public (36%) had become more risk averse. We believe there is an opportunity to not only rethink risk tolerance, but also how it is defined and measured against potential opportunities, as well as how it is communicated across an organisation.

This means considering risk in the context of your organisation's strategic objectives and different challenges or opportunities. For example, the board might be willing to risk a financial loss in pursuit of business growth but wouldn’t gamble with the health and safety of employees. Ensuring these trade-offs are articulated so everyone in the organisation understands them will then help achieve consistent, confident decision making.

“Our board is really clear about their risk appetite and how much risk they are willing to take. We are increasingly clear in developing metrics that allow decision makers to understand what that looks like. So getting key indicators to see what type of risk is intolerant, where might you want to make an intervention, so everyone in the organisation has oversight of it. We are trying to bring some science and consistency to what is ultimately a judgement.”

Rachel Lindley,
Head of Risk and Audit, Yorkshire Water

Be resilient

Many of the risks organisations face are unavoidable. This is not just true of the pandemic, but other systemic issues like supply chain disruption and cyber crises. The focus therefore needs to be on ensuring you can weather the storm, adapt and emerge stronger.

But what does it take to be resilient? And how can you ensure you are ready to respond to risks that are fast-moving and unpredictable?

“The pandemic has shown us all that we have reserves of resilience that we would never have thought possible and that, when we need to, we can solve problems quickly. We can take risks, we can take quick actions and we can show compassion when things don’t always work out as we would wish. We have shown that as individuals, as organisations and as a society, we can do this when there is an urgent need. We just need to do the same when the need isn’t immediate but is fundamental."

Sarah Isted,
Risk Management Partner at PwC

Action 6:
Integrate and elevate risk as a core strategic priority

As part of rethinking risk, there needs to be a cultural shift so risk is seen as a business enabler and a natural part of pursuing opportunities. This starts with senior leadership, making sure that risk is included in conversations at board level and drives strategic decisions, rather than being treated as a compliance exercise.

If a risk mindset becomes intrinsic to organisational culture, then employees and stakeholders will be more comfortable making it part of their own decision making. This ensures that risk drives proactive business strategy and helps your organisation achieve its goals, rather than acting as a brake on growth.

“The pandemic has emphasised that we can’t manage risks in siloes, multi-functional teams within and across organisations had to come together like never before. Maintaining and building on this is key – this can’t be about more guidance and standards, but rather how we integrate risk management into decision making. We need to encourage more interconnected thinking informed by the best available information to be confident to manage risks and take opportunities.”

Mark Ripley,
Risk & Assurance Director, HM Government Finance Function

Action 7:
Be clear on the purpose of your organisation and use this to consider and mitigate risk

The pandemic emphasised that having a defined and authentic purpose can help an organisation be more resilient, as well as guiding which risks should be embraced or avoided. It ensures everyone has a clear understanding of the way forward and builds trust with your wider ecosystem. For example, would your purpose drive your organisation down a particular path or would it tell you to turn back?

“Historically, when you looked at managing risk, you'd manage it in a way by reference to legal, and compliance and regulatory requirements,” says Kim Morgan-Verlaque, Chief Business Integrity Officer at Unilever. “Managing risk has to be much broader than this. Companies have to do good, as well as comply with the letter of the law. For example, recognising the importance of equity, diversity and inclusion as well as the expectation placed on companies to be more transparent about the way they source raw materials and how their supply chains operate.”

The first step is to work with your people and stakeholders to set out a clear, authentic purpose. This builds the right mindset, which can feed into the risk frameworks and metrics that will help build resilience and deliver sustainable outcomes.

A clear sense of purpose also provides a platform for collaboration when faced with complex, systemic risks. Fighting the pandemic as a single unifying purpose became the bedrock of cross-industry collaboration in a way that accelerated and multiplied the impact of any single organisation alone.

“As part of our work on reducing childhood obesity we collaborate very closely with fast food companies, which have a fundamental role to play in addressing major public health challenges. The individuals we’re working with share our goals and we’re all trying to achieve that same outcome, and we’re able to bring different tools and mandates together. Finding that common purpose and cultural alignment is really critical for getting businesses involved in finding collaborative solutions to these big public health issues.”

Kieron Boyle,
Chief Executive, Guy's & St Thomas' Foundation

Action 8:
Retain pandemic speed and style of decision making and responsiveness to adapt to changing circumstances

As organisations responded to the volatile and extreme challenges of the pandemic, it was necessary to become more adaptable and make faster decisions. For many organisations, this now presents an opportunity for a broader shift to a more agile, decentralised model, doing away with the bureaucracy and micromanagement that makes risk-based decisions slow and hinders the ability to respond quickly to new opportunities.

Speed of thought and action will be crucial as focus shifts to the bigger challenges ahead. For example, transforming an organisation so it’s able to respond to evolving cyber threats is difficult – the scale of the task can lead to inertia at board-level. You need to remember the positive outcomes that were achieved through agile, responsive decision making and apply that to future risks.

“Have good people around you, who are transparent, don’t hold back, will give you their view and their opinion in an objective way, who just encourage that. The speed of response is not necessarily about acting quickly, it’s thinking quickly, that just means giving people time to pull their view into some kind of shape as opposed to finger clicking, because we need to make some decisions.”

Matt Margereson,
Chief Operating Officer, Hotel Chocolat

Be inclusive

The scale and interconnectedness of the risks facing organisations and society demands a collaborative response. This comes in many forms – from being open as a leader to new ideas and seeking perspectives from different people to co-operation between industries and sectors. We can’t overcome systemic challenges without being willing to ask for help and work together on shared solutions.

Action 9:
Create a safe space for risk and opportunity to be identified and shared

Organisations must be willing to listen to different voices that can challenge entrenched habits and viewpoints. Leaders need to actively ask for feedback and opinions, and champion cognitive diversity within teams so they benefit from different perspectives, experiences and ways of thinking, which leads to better problem solving.

To get the full benefits of a diverse team, you must create a culture where people feel included and able to speak up and share their opinions. If people have psychological safety, they’re free to be more innovative, as they’re less likely to be concerned about the consequences of making a mistake. This starts at the top – if leaders are open about their own failures and take measured risks, then it encourages others to speak up as well.

“Role model how you own your failures with as much conviction as you own your success. Show that you can deal with those problems, those things that go wrong and you can move on – fail fast and learn quickly. Also, role model being curious – sometimes people don't ask enough questions, because they are worried about looking silly. But nobody has all the answers, so it's important to ask questions, otherwise we are never going to move any further forward.”

Sabrina Cohen-Hatton,
Senior firefighter, Researcher and Author

Action 10:
Retain pandemic spirit of collaboration and sense of common purpose

Many of the problems society faced during the pandemic – such as the need to rapidly create and distribute a vaccine, or set up the Nightingale hospitals – were overcome through collaboration. We must retain this shared sense of purpose and the ability to find common ground if we are to find solutions to the risks ahead, such as climate change and the need to reach net zero.

This will require the creation of new ecosystems that enable cooperation across different industries and government bodies, with the public, private and not-for-profit sectors working together to meet shared targets. We also need a more sophisticated way of measuring success that looks beyond GDP to include health, wellbeing and environmental issues. The Demos-PwC Good Growth for Cities Index provides a useful example, measuring economic performance through the lens of the public's priorities.

“Looking ahead at emerging risks and future shocks - and there will be more - working out how organisations can benefit from their talents and technologies is so important. The power of organisations collaborating to ensure robust supply chains is now clearer than ever. Such collaboration can also create the environments and technologies for the right skills and talents to develop and thrive, generating wider economic benefits as a result. If we can harness that power, it will deliver success.”

Stephanie Bruce,
Chief Financial Officer, abrdn plc

Rethinking risk

“As we enter a new era of risk, with accelerating changes demanding greater resilience and agility from organisations than ever before, we need to work together to successfully overcome the multitude of uncertainties our organisations now face - we cannot do this by ourselves.”

Mohammad Khan,
General Insurance Partner at PwC

To be successful, we need to apply the lessons captured in our Agenda for Action to some of the most significant challenges we collectively face.

What does this Agenda for Action mean for you personally? How might it make a difference to how your board makes decisions, or your team functions, indeed, your organisation more widely? Who and how will you partner with to help you overcome the challenges we face? How will you use these risks as an enabler to make better organisational and business decisions?

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Sam Samaratunga

Sam Samaratunga

Global Risk Services Leader, PwC United Kingdom

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