The link between risk management and innovation

Is your risk management agenda effective? Effective risk management spurs innovation. In these uncertain and complex times characterised by a global pandemic, the risk is everywhere. How have you structured your enterprise risk management approach as a leadership tool to create and sustain value?

The starting point is to understand what risk is.

According to the best practice standards, the risk is the effect or impact of uncertainty on objectives. The effect could be a gain or a loss. For example, an event that brings again, for example, sudden movement of the foreign exchange in one’s favour, increases enterprise value! This is a windfall and causes no worries! The business must stay ready to tap into such opportunities.

However, an event that causes loss of the value due to unfavourable movement of the foreign exchange, for example, could be catastrophic and threaten to go concerned. Leaders are more afraid about losses, that is why conversations about risk management focus on minimizing losses.

To win, leaders must manage risk in such a way that they are not obsessive or too risk-taking. That is a balance they must make. And that is where innovation comes from. Look at the following photography 1:

Source: Internet photo

Question 1: What do you see? Name the top five risks present in the T model. Get a piece of paper and write down your answers.

Now examine photograph 2 below:

Question 2: What key innovations have occurred?

Question 3: What risks still exist?

Question 4: What still could be improved?

Without risk management, we would not have moved from T-model to the latest sports car version. Even then, some risks remained. As part of the ongoing risk management, such gaps can be identified, and new improvements or innovations made.

Because risk is the impact or effect of uncertainty on company objectives, innovations made are focused on growing stakeholder value and sustaining it. To win, the board must champion enterprise-wide risk management.

Your exercise:

  • What is risk management?
  • What is the relationship between risk management and innovation?
  • How do you use risk management to innovate and not just as a compliance function?

Do you need risk management support? Contact us today

Copyright Mustapha B Mugisa, Mr Strategy 2021. All rights reserved.

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