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Analysis

Risk becomes a performance enabler

Future of risk series: Trend seven

In the past, risk management was often an exercise in fear and avoidance, with organizations focused primarily on completing necessary, compliance-driven activities. But that’s changing. Many leaders are now viewing risks in terms of their potential to drive performance and value. As risks become more measurable and tangible, organizations will be better able to determine an accurate upside value for risk—and encourage a desired level of risk-taking behavior in a bid to balance risks and rewards.

What forces are driving this trend?

Focus on innovation and experimentation is creating a culture in which failure is being viewed as a necessary step to success rather than something to be avoided at all costs
Analytics capabilities are helping leaders link risk to performance
New workplace technologies such as wearables, image recognition, and artificial intelligence are improving risk sensing and monitoring capabilities
Disruptive new business models are driving the need for increased risk-taking
Decentralization is creating flat organizations where employees are empowered and rewarded for taking on risks themselves

 

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What are the opportunities?

  • Use risk dashboards, visualizations, and scenario analysis to empower leaders with data to make risk-informed decisions
  • Recognize and reward intelligent risk-taking
  • Foster a risk-intelligent culture and empower employees at every level to take on informed risks

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What are potential threats and pitfalls?

  • Exposure to risks beyond desired risk appetite
  • Potential reputation damage and regulatory actions as a result of taking on excessive risk
  • Inability to correlate performance with risk due to lack of appropriate tools

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Case studies: Where is this trend already in play?

Adobe’s Kickbox Innovation Workshop encourages innovation and risk-taking by providing the participating employees with seed money ($1,000 prepaid credit card), a step-by-step startup guide, and a 45-day period to experiment with and validate new ideas.1

Chief Financial Officers are using risk dashboards for driving strategic decision-making, such as weighing M&A possibilities, developing new product lines, planning market entry strategy, and deciding on capital allocation.2

Advertising agency Grey gives out the Heroic Failure Award that honors new, unproven ideas that were failures in the market, thus rewarding and encouraging risk-taking among employees.3

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Explore the future of risk trends:

   

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1 Maggie Zhang, “Adobe Kickbox gives employees $1000 credit cards and freedom to pursue ideas,” Forbes, August 19, 2015,
http://www.forbes.com/sites/mzhang/2015/08/19/adobe-kickbox-gives-employees-1000-credit-cards-and-freedom-to-pursue-ideas/#73832c883c39.

2 Frank Friedman, Chuck Saia, “How dashboards can help CFOs manage risk,” Deloitte Insights (The Wall Street Journal), April 28, 2015,
http://deloitte.wsj.com/cfo/2015/04/28/how-dashboards-can-help-cfos-manage-risk/.

3 Gwen Moran, “Fostering greater creativity by celebrating failure,” Fast Company, April 04, 2014,
http://www.fastcompany.com/3028594/bottom-line/a-real-life-mad-man-on-fighting-fearfor-greater-creativity.

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