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Risk Management: The Pathway to Greater Certainty

By Sergio Hernandez - CIAL Dun & Bradstreet Mexico
President and CEO

STORY INLINE POST

By Sergio Hernández | President - Tue, 05/30/2023 - 16:00

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The financial world has just gone through a challenging phase. Last month, Silicon Valley Bank (SVB), an important bank that offered financing to emerging technology companies, declared bankruptcy. This meant the largest bank collapse in the US since the bankruptcy of Washington Mutual in 2008.

In one day, SVB lost 60% of its value, and its customers began to withdraw a massive amount of deposits. This led to a widespread loss of investor confidence in the sector. In addition, other institutions followed, creating a domino effect that put a strain on the bank, impacting the actions of other banks and igniting fears of a global financial crisis. In this context, the most recent case was that of First Republic Bank, whose troubles became known during the first hours of May and becoming the fourth bank to face intervention from the US authorities.

Faced with this situation, the bank’s risk management was discussed, and the control agencies of the American government were blamed for ignoring the warnings that had already been given to them, which resulted in  strong consequences for the banking system.

The previous month’s overview reinforces the relevance of risk management. Understanding it, applying it optimally and, above all, knowing the technological tools to achieve it will be key for the entire industrial sector.

From the Basics to the Concept

In essence, when people speak about risk management, they refer to the identification, analysis, and response to factors that could challenge a company. This prior assessment is carried out in order to implement strategies that control or diminish negative effects for a company in the short, medium, or long term.

Despite a good organization, contingencies could arise or originate from various external or internal causes; for example, from errors in administration and accounting to threats like cybersecurity vulnerability.

At what point is it ideal to generate a strategy to avoid this type of problem? It is important to note that risk management is proactive and must be constant. In any type of project, it is suggested to perform a procedure during the planning phase, so you can better identify any kind of potential threat, as well as its impact, and thus control those risks in the implementation stage.

The main objective will be to identify, reduce and, ideally, eradicate anything that endangers an organization and its operations. Therefore, customized strategies, techniques and actions are implemented.

The Implementation Process t

Like any process, managing threats has a series of steps for its implementation. Some of these are:

  • Identification, analysis, evaluation, reduction, and monitoring.

  • Selection of technological tools, for example, the use of real-time data and the implementation of artificial intelligence.

  • Transparent decision-making and adjustment of tool capabilities, depending on the organization’s needs.

Real-Time Data: The “X Factor” 

Industry 4.0 has big data as its flagship. The colossal accumulation of information and data — coming from more than 5.4 billion internet users worldwide — has become the great treasure for the industrial universe because of its multiple benefits.

For optimal management, the key lies in the precision that can be achieved through data analysis and use. In this way, companies will have information for decision-making, generating:

  • Positive feelings (admiration, respect, recommendation). 

  • Quality (innovation, confidence, security, customer support). 

  • Vision of the future (quality of management, efficiency, and leadership in the sector). 

  • Economic growth. 

  • Commitment to the community.

The time to apply big data for risk management is now. Those companies that do not, will be missing out on great opportunities to take their business or operations to the next level. The combination of both within the financial sector and other companies translates into advantages, such as:

  • Simplification of steps and reduction of costs for processing data.

  • Boost to organizational transformation.

  • Knowledge for decision-making.

  • Better customer segmentation.

  • Optimal risk assessment.

  • Advanced tracking against the competition.

While data may remain in the cloud, it is not functional if it is not used. The challenge now will be to capitalize on the information and turn it into specific solutions to manage threats. Examples of this are in areas like compliance and due diligence, where standardizing processes and combining them with innovative ways to mitigate risks can avoid costly business disruptions.

Companies need real-time information about their various stakeholders. It will be essential for them to reach out to suppliers who can provide them with accurate reports, platforms, and data to take control of their strategic alliances.  

Risk management gives way to building sustainable business relationships based on accurate information. Understanding this and taking action will avoid tensions, such as those one experienced in the first quarter of the year, the consequences of which are just beginning to manifest. However, taking preventive measures is in the hands of the directors of those companies that wish to remain over time.

Photo by:   Sergio Hernandez

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