Disruptive Risk Dashboard (DRD)

Traditional risk registers and aggregated risk profiles from specific business units are very valuable tools for establishing and remaining within an organization’s risk tolerances/appetite. By design, they measure and track a myriad of currently available Key Performance Indicates (KPIs) and Key Risk Indicators (KRIs). These foundational elements form the cornerstone of many existing Integrated Risk Management (IRM) programs, often supported by sophisticated Governance Risk & Compliance (GRC) platforms. These platforms are great for monitoring and providing oversight of and organization’s known risks.

The evolution of this corporate capability needs to systemically identify the disruptive risks that could have a significant, severe, and sudden impact on a company’s revenue, competitive position and/or reputation. This difficult to master organizational capability requires senior leadership to take a step back and identify new, weak market signals masked in the background noise of business as usual activities. These risks have the potential to change industry structure or operating conditions, make existing business models obsolete, derail growth, or otherwise pose a fundamental threat to the long-term strategy of the organization.

The Disruptive Risk Dashboard (DRD) is designed to complement existing IRM program elements and GRC platforms. By design, it identifies and describes blind spots in the current risk management program. Historically, some programs have attempted to capture some specific events caused by these disruptive risks, often describing them as infrequently occurring and very rare ‘Black Swans.’ This perspective is dangerous because history has shown that most business risks that can be imagined will eventually materialize.

The NACD Blue Ribbon Report on Adaptive Governance highlights some of the key organizational mindsets that can make disruptive risks even more devastating for many organizations:

  • Significantly underestimating of specific threats
  • Underinvesting in the activities and technologies to support innovation
  • Allegiance to legacy business models with reluctance to question their future viability
  • Underestimating the cost impact if a black swan was to materialize
  • Failure to account for potential first- or second-order competitive response to a company’s action
  • Gravitating toward an overly narrow set of benchmarks for assessing alternatives (e.g., focus on a recent event or major historical milestones)
  • Failure to fully explore the cost and potential implications of ‘staying the course’ versus pursuing alternate strategies
  • Underestimating the shifts in behavior – or potential risks – from customer, suppliers or partners
  • Explaining away underperformance as a result of “challenges in execution’ or uncontrollable external factors without exploring closer to home possible root causes
  • Oversimplifying complex integration activities between newly acquired organizations or important strategic alliances

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can become Risk Neutral