The financial crisis brought interconnectivity to the forefront of management issues. Organisations are starting to look into the relationships between risks. The annual World Economic Forum Risk Report charts a range of global risks arising from the new reality of interconnected challenges, interdependent stakeholders, and an accelerating speed of change. The report emphasises the need to appreciate and understand how risks evolve, how they interact to create potential impacts on stakeholders, and what trade-offs are involved in managing them.
When we accept that risk are interconnected it follows that we should consider interconnectivity in our risk analysis and management. When the interconnectedness of events is frequently cited as being at the root of large-scale failure, then why are risks still largely analysed and managed independently or in isolation. While there has been progress in looking at risks from a portfolio perspective and balancing the total amount of risk, more can be done to factor dependencies and linkages in the assessment of risks and how they are addressed.
Identifying and assessing interconnectedness promotes a broader and deeper understanding of the risks to your organisation. Risk Insights Explorer is a unique tool which can help organisations:
- Identify relationships between risks
- Ensure that risks are analyzed and addressed horizontally
- Understand the ripple effects of decisions
- Encourage proactive communication and engagement
- Identify clusters and highlight significant risk interrelations
to consider in the management of risks
- Inform risk responses and increase the effectiveness and efficiency of risk action plans.
In analysing the results of the exercise Risk Managers can identify:
- Risks that are positively correlated
- Risks that are negatively correlated
- Which risks have a causality relationship
- Which risks are highly interconnected
- Which clusters of risks are homogeneous and which are heterogeneous.