The Importance of Predicting Risks
By: Grc Blog
Tags: Risk, Risk Management

In an increasingly demanding environment, with growing stakeholder expectations and rapid technological advancements, it is hoped that auditors can provide better levels of foresight. It is no longer just identifying existing risks but emerging ones, which implies new practices for this purpose.

Organizations also look for timely advice, anticipation of risks and, in that sense, anticipatory measures for their mitigation and control. This demands from auditors a deep understanding of new risks, disruptive business, and innovation. Knowledge of data analysis and digital processes is required to tackle new businesses, as well as having tools that contribute to this work. Technical resources must be combined with personal skills to detect and interpret risk signals and, on that basis, predict impacts and effects so that controls can be designed.

Historical data series, weather forecasts, user behavior on social networks, economic cycles and even political projections have become sources of information from which it is possible to identify trends and behaviors that may affect the objectives business. Therefore, emerging business risks that must be effectively managed.

How Risks are Predicted

Government decisions about interest rates or relations with other countries may have an impact on the future business of companies, their levels of indebtedness and their market. A monitoring of these variables, in conjunction with real-time evaluations, allows a broader vision and with a greater panorama than that obtained from traditional risk event records.

Risk analysis must consider the events that took place before, during and after the materialization of a risk event, in order to have a more comprehensive view and consider what variables could influence the result that finally took place. It may be possible to identify patterns as well as emerging risks and thus achieve more proactive mitigation.

It is necessary for auditors to act with skepticism and maintain a critical vision of the processes, which together with a broad vision of the environment can contribute to anticipating risks and change the traditional reactive approach of many companies in the treatment of risks, into a more innovative.

The design and implementation of business programs related to risks and compliance must make efficient use of technology, taking advantage of resources such as the cloud and adopt an integrated approach, seeking the use of advanced analysis tools to identify emerging risks and thus anticipate risks, facilitating more proactive mitigation. Emerging risk analysis can range from business risks or those within a functional area, to those involving suppliers and supply chains.

Technology’s Role in Predicting Risks

In a process of anticipating risks, the beginning is the collection of information and data that can be structured and unstructured and come from various sources, either external or internal such as social networks, blogs, websites, or information from the areas sales, finance, customer profiles or customer service. Once the data is stored (preferably in the cloud), using applications for analysis, the data is studied to obtain trends and behaviors. You can also use artificial intelligence tools to implement models and predict results.

Although the detection of risks is present in the different phases of the audit, trying to anticipate risks can give better results at the beginning, when carrying out the audit planning, since it is the initial moment of resource allocation. On the other hand, the identification and prioritization of the risks that must be considered in the audit plan and / or considered in specific audit projects is facilitated.

Increasing the use of technology when providing audit services and communicating results implies improvements in quality, privacy, security, talent, and regulatory compliance. The different facets of risk (reputational, operational, strategic, financial, etc.) can be managed more effectively by obtaining more and more timely information about them.

The Future of Risk Management

While annual risk assessments are an essential part of the audit work, detecting and anticipating risks using technology and a broad view of the landscape can give auditors a necessary edge in meeting the growing expectations of risk.

The good news is that it is easier now for businesses to use technology to manage risks than it has ever been before. If we go back a decade, risk management technology was only feasible for the largest organizations in the country because of how expensive they were. Businesses used to spend millions of dollars on developing and then implementing the technology.

Modern risk management technology solutions can be procured at a fraction of this cost. There are many different risk management solutions available to users, many aimed at distinct types of users and businesses. Cloud-based solutions have quickly emerged as the best possible option for most businesses. They have a much lower implementation cost than on-premises solutions while providing the same benefits. Cloud solutions also proved to be highly advantageous in 2020. The pandemic forced many offices to shut down, which meant on-premises solutions could no longer be accessed by risk managers. Businesses that used cloud solutions could easily continue working from home.