Building a risk resilience strategy

This is an excerpt from an article originally published in the 2023 Commonwealth Security Review.

Seldom have organisations had their risk resilience tested more than it has been in the past few years. Business and government leaders understand that the modern risk landscape is complex and interconnected, but they aren’t always ready for how those connections can play out in terms of causing disruption.

Global events offer constant reminders about a key aspect of resilience: Organisations would be well-served to adopt a structured, disciplined resilience approach that accounts for situations in which multiple risk events interact. The Global Risks Report 2023 — from the World Economic Forum (WEF), Marsh, and others — called such an accumulation of compounding risks “polycrises.”

COVID-19, ongoing political conflicts, supply chain disruptions, and other issues, have shown how vulnerable our economies are to major external shocks. In fact, our economies are much more vulnerable than perhaps they were in previous years, for reasons including:

Supply chains being more complex and streamlined for efficiency, with minimal resilience built in leading to a shorter lag time between a disruption occurring somewhere in the world and an impact materialising at the other end of the chain.
Cost cutting has removed much of the resilience that existed previously in many organisations. Many businesses equate resilience with cost, leaving resilience investments exposed when efficiencies are needed.
A long period of relative peace and stability, at least in most developed economies, has left many organisations unused to periods of crisis and rapid change. Recent events have changed this, and some systems are not set up to cope.
Geopolitical risks continue to mount, creating uncertainty in almost every corner of the world.
Rapid economic growth in developing economies is increasing pressure on resources, and will potentially hasten some crisis impacts.
Climate change is contributing to increased economic and social vulnerability.

While business continuity planning and good crisis management are important, resilience encompasses much more. An integrated approach to resilience provides organisations a competitive advantage over less-prepared peers, as well as the ability to adapt to constantly changing external circumstances.

Elements of a risk resilience approach

As the volatility, velocity, and magnitude of risks increase, many organisations find themselves unprepared for the cascading impacts from polycrises.

For example, Russia’s invasion of Ukraine in February, 2022 propelled geopolitical risk front and center, but many organisations were ill prepared for the knock-on impacts on energy markets, inflation, and supply chains. Regulatory issues in the form of sanctions against Russia and increased cyberattacks further complicated matters. Climate issues, too, became entangled as extreme drought conditions in Europe in the summer of 2022 forced some nuclear plants to scale back power generation because they could not release cooling water into low-flowing rivers.

The interconnectivity of crisis events is pushing organisations to maintain a more comprehensive assessment of the risks they face. At Marsh we believe that:

Resilience is not simply a compliance exercise. It involves dynamic assessments of risk and a continual reappraisal of whether actions taken to address them are enough in an environment marked by constant change and polycrises.
Resilience is not the purview of risk professionals alone. It requires active engagement across the organisation, united by a common view of the risks and crisis scenarios that could cause the most damage to, or indeed represent the biggest opportunities for, the business.
Risk resilience and strategy should be connected, and that includes incorporating risk finance and transfer strategies into a coherent system designed to maximise every investment made in building resilience.
Resilience should be measured and monitored to provide ongoing assurance of the organisation’s ability to respond to, recover, and thrive in the context of an ever-changing external risk environment.

The benefits of a resilience strategy can manifest in many ways — from increased levels of trust in the organisation and its leadership, to increased share performance and, of course, an improved state of readiness for any crisis scenario. For example, when global trade issues heated up several years ago, one of Marsh’s large retail clients anticipated potential disruptions in supply chains. They were not sure of exactly how issues might manifest, but a resilience mindset led the company to begin on-shoring more of its production and suppliers. When the pandemic hit not long after, the moves the company had made helped them navigate the crisis, even though the decisions were not originally made with pandemic risk in mind.

Investing in resilience

Establishing a comprehensive resilience strategy comes with challenges, not the least of which is maintaining management focus. After all, some may think that, having survived COVID-19 or another recent crisis, there’s no need to worry about the next one. For others, the issue may be one of fatigue following a run of crisis events.

But despite experiencing a rash of negative events, there are reasons for optimism regarding resilience, including:

Resilience is now firmly on boardroom agendas and receiving significant management attention.
Recent crises have served as a wakeup call for many organisations to build, adapt, or invest more in their resilience planning.
Risk data is more readily available — and we have better analysis tools to spot issues and identify trends before they become problems.

Resilience isn’t about predicting the future with complete certainty, or reaching a particular destination. It’s about identifying uncertainty in dynamic systems and environments through scenario planning, risk modelling and data analysis, stress testing, and more.

Resilience aims to measure potential impacts, and then reduce uncertainty to the degree that is feasible, enabling better decisions about where to invest.

At Marsh, we work with clients to focus resilience on enabling an organisation to anticipate risk, find opportunities, and continue to thrive.

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This publication is not intended to be taken as advice regarding any individual situation and should not be relied upon as such. Marsh shall have no obligation to update this publication and shall have no liability to you or any other party arising out of this publication or any matter contained herein. LCPA 23/523