Business risks to be aware of in 2023
Risk is a real thing. At every stage of company development, every business is exposed to a variety of risks. Our approach to risk management has a significant impact on how we live as individuals, as businesses, and as a society. Decisions on risk-related matters are difficult to make but must be painstakingly made because the main goals of a company are to make money and maintain growth. In order to ensure that people take calculated risks in order to be strong when anticipated or unexpected incidents occur, experts in risk, hazards, and crises management are doing everything possible.
Speaking with Mr. Sanni Oladimeji, Head of Risk Management and Compliance at Sovereign Trust Insurance, he listed the top ten risks that corporations must be aware of in 2023 if they want to endure the unstable business and economic climate.
The regulatory risk comes first. (a high profile kind of risk). Changes in legislative or regulatory policies or levels of compliance that could endanger the profitability of the business or lead to sanctions are examples of this type of risk. Various government agencies, including NAICOM, SEC, NGX, FRC, FIRS, LSIR, and others, strictly watch and supervise operators under complex regulatory requirements. Frequently, regulatory changes can result in higher operational costs, altered competitive dynamics, or decreased investor interest in an industry.
A responsible business would consciously create and keep an up-to-date regulatory rulebook as a thorough archive of all regulations that affect it. Automating the procedure for informing responsible officers of their compliance duties and promptly escalating non-compliance to supervisors may further improve the rulebook.
Setting up appropriate oversight mechanisms at the board and management levels is necessary for routine monitoring to ensure regulatory compliance. A framework for involving and managing their regulatory partners must also be developed.
The task of continuously monitoring new and proposed regulatory changes and reporting on their effects on the company should be assigned to internal or external resources by risk managers. Additionally, they ought to allocate audit resources to assessing the organization's procedures for keeping track of and adhering to all relevant laws and regulations.
Fiscal and monetary risk is the second category of risk. It refers to inconsistent and contradictory government policies that come from the effects of worldwide pandemics, which reduce economic activity, lower the price of oil, and reduce consumer spending. company losses brought on by the adoption of unfavorable fiscal and monetary policies.
This high level risk can be reduced by reviewing an organization's credit exposure to the public sector with the goal of reducing concentration, implementing sales incentives to encourage consumer spending through short-term price changes and discounts, reviewing current credit terms with banks and borrowing corporates to reduce the risk of default, developing and continuously reviewing a viable business strategy, and lowering operating costs through procedural improvements
Risk of Foreign Exchange Volatility: This high level risk could be caused by exposure to potential monetary losses as a result of currency exchange rate fluctuations, which would have a major impact on how much insurance policies in foreign currencies pay out in claims.
Businesses are vulnerable to three major foreign currency risks: transaction, translation, and economic risks. Transaction risk is a concern for finished foreign currency transactions that have not yet been settled.
Risks include the possibility that currency fluctuations will hurt the business and force them to swap currencies at a price that is higher than originally budgeted. A change in the financial situation (assets, liabilities, and equity) as a result of exchange rate fluctuations is known as translation risk. While there is an increase in economic risk when a local currency appreciates and local businesses lose ground to their international competitors. Macroeconomic variables, geopolitical factors, and hurricanes all have a significant impact on this.
Creating a steady flow of foreign money inflows or income is mitigation; finding possible hedging tools, like futures and forwards, to successfully reduce volatility; locating and seizing chances to reduce exposure to foreign-denominated payments and loans, as well as foreign-denominated outflows of raw materials and services. Then Planning for various exchange rates and preparing for the worst-case volumes of deals is known as scenario planning.
Risk to cyber security: Every company must adopt cutting-edge methods for the management of cyber security risks due to the recent proliferation of cyberattacks, which have an ever-evolving nature. Utilization of stolen digital intellectual property, unauthorized access to business systems and network devices, and deliberate manipulation of IT programs and data.
By taking a risk-based strategy, protecting what counts, and identifying your crown jewels, you can reduce this high level of risk.
Other prevention techniques include: Cybersecurity risk from third parties should be evaluated and managed, as these risks are brought on by third-party connections and/or partnerships.
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It is crucial for organizations to develop the capacity to react to cyber incidents and remain resilient to cyberattacks. It is no longer sufficient to invest in the prevention of cyber incidents. By performing a Data Privacy Impact Assessment of current processes and increasing capacity in data privacy measures, it is possible to proactively identify new cyber threats and risks. Threat intelligence is just as essential as visibility into security incidents.
Technology Infrastructure Risk: This risk arises from the inability of the enterprise resource planning (ERP) system and information technology infrastructure to effectively and efficiently serve the needs of businesses both now and in the future. inadequate foundation for information technology and It may be risky for an ERP system to effectively and efficiently support the company's present and future requirements.
This high level risk can be reduced as a result by creating a technology strategy that is in line with business goals, establishing adequate governance for the management and investment of technology infrastructure, developing and implementing a framework for technology risk management, and establishing a strategy for cloud adoption as well as a framework for cloud governance to direct the move to the cloud.
Political Danger. This is the most closely watched because political actions have an impact on the nation's economy, as Nigerians have seen over the last six months. When there is discord and division among the three branches of government, it poses a high-profile risk to good governance and a favorable business climate, which is exacerbated during electioneering. Businesses would proceed cautiously due to political uncertainties brought on by government acts at various levels (local, state, or federal).
Scenario planning, anticipating political moves that will have an impact on company operations, and making the necessary proactive decisions are essential for mitigating this risk. More specifically, making an investment in information and intelligence networks is a smart move.
Health, Safety, and Environmental Risk: Given the current global epidemic of extremely contagious illnesses and diseases, there is a risk to the health and safety of the workforce.
To reduce the danger of the virus spreading both inside and outside the company's premises, health, safety, and environment (HSE) policies and procedures could be strengthened and enforced.
Strict adherence to safety and health regulations, a review of the work-from-home policy, monitoring of employees' vaccinations, and a reduction in physical contact with clients and guests through technological engagements are all required.
Competition Risk: In this case, unhealthy competition is on the rise, and new competitors are entering the market. Six new companies were recently granted licenses in the life, non-life, and reinsurance sectors of the industry. The entry of new players will increase industry rivalry. These new players are also anticipated to introduce new insurance products and company strategies.
This high-profile risk can be reduced by creating differentiated products, innovating products, streamlining and cost-effective processes, providing superior customer service and exceeding customers' standards, engaging with customers digitally, offering competitive pricing, and paying claims quickly.
Risk of losing important clients and business due to a real or perceived inability to fulfill their expectations is known as customer attrition. Customers are now more cognizant of the caliber of the experience they have and the perceived worth of their purchase. They frequently compare their sector-specific experiences, using the greatest experience as the standard for all others.
A clear vision for the customer experience, investment in knowing the value drivers for customers, and incorporation of these drivers into the propositions and experiences they provide can all help to reduce the medium level risk of customer attrition.
Organize the company around the idea of the customer experience. Providing a valuable customer experience prevents or reduces attrition risk across the entire organization, not just one area. To enhance customer experience and increase internal company efficiencies, businesses should use digital and emerging technologies like AI and machine learning.
The skill shortage is last but not least. The level and quality of the skills, knowledge, and experience needed to accomplish business goals and/or maintain growth in this complex and dynamic business environment are insufficient in this situation.
By explicitly defining and carrying out a succession management plan, it is possible to reduce this medium degree of risk and guarantee a ready talent pool for key roles at all times. Designing Learning and Development (D&L) solutions that provide talent with the cutting-edge skills of the future and improving the employee experience to attract and keep important talent are both essential.