Many of my professional and personal experiences have taught me that risk and opportunity are two sides of the same coin. The current covid-19 crisis will be no exception. I have learnt – often the hard way – that being prepared for major events is first about ensuring the resilience to survive, and having pre-considered options ready to go as soon as rare opportunities present. It is this combination of opportunity and threat that makes strategic risk such an important and compelling topic.
To start the strategic risk management process, businesses typically construct external scenarios which incorporate shocks such as geopolitical conflict, financial meltdowns, social disorder, terrorist attacks, cyber attacks, natural disasters and, of course, pandemics. What are deemed to be unforecastable “black swans” are very often framed at a high order in corporate scenarios, if not explicitly identified.
Our ability to envisage majorly disruptive events is not our problem. Trying to predict precisely what sorts of events these will be and when exactly they will occur is much more challenging. Investment groups such as Blackstone understand this dynamic well; as former MD James Mossman noted,
“The chance of any one of them happening is tiny, but the chance of none of them happening is also tiny”.
From a strategic risk management perspective, the key question for businesses lies in how effective they are in translating this knowledge both into business resilience and the adaptability to realise opportunity when events actually occur. Or as Charles Darwin put it,
“It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change”.
Our conversations with global mining CEOs over the past weeks highlight the challenge of translating awareness into action. Some miners identified and assessed of the threat potential of covid-19 as being higher than MERS or SARS as early as February. In the event, however, the sheer pace of events has been overwhelming, needing to move far more rapidly to make the most of temporal opportunities.
Managing strategic risk is a dynamic process. Its starts with taking a scenario view of potential events and then preparing playbooks which answer two fundamental questions:
- What embedded insurance should be adopted to build some resiliency to unexpected shocks; and
- What options should the business be prepared to deploy to spur future growth in these situations?
When events do occur, managing through them becomes an iterative process of mitigating immediate risks and evaluating the emergence of longer-term opportunities and threats.