Managing Risk in Uncertain Times

LogicGate | July 12, 2022
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The COVID-19 pandemic surprised the world as businesses in every industry suddenly had to maneuver lockdowns, ever-changing regulations to slow its spread, and uncertain consumer demand. Businesses worldwide directly experienced what can happen when external factors are not included in business continuity plans.

Now, as vaccines are widely available and the pandemic has slowed, its effects are still rippling throughout world economies. Inflation and workforce shortages are affecting nearly every sector. Moreover, additional geopolitical factors, such as Russia’s invasion of Ukraine, have introduced even more variables to a stumbling world economy. 

With inflation concerns leading the charge, a survey of CFOs revealed that no respondents believe a recession can be avoided. Some criticize actions taken by the U.S. Federal Reserve, while others are still struggling to adapt to supply chain disruptions.

It seems like a recession is inevitable. So how can businesses account for recession risk to ensure they survive the downturn? In the early days of the pandemic, we shared an article on how to navigate an economic downturn. While the macroeconomic risks have evolved and changed, the steps to take so you can plan and prepare have stayed true. Read on to learn how risk management can help your organization navigate an uncertain economic climate and make it to the other side.

Now is the Time for Risk Management

Effective risk management is all-encompassing and considers every potential hazard facing the organization. Unfortunately, many businesses take a narrow focus on risk management and put a magnifying glass on cybersecurity or third-party risk management. 

However, businesses need to consider external factors that affect the macroeconomic world in which they operate. Risk management needs to consider inflation risk alongside other risks that can be more directly controlled.

Let’s explore how your organization can start planning for economic risks that threaten business continuity.

Empower a Nimble Risk Management Committee

It’s time to empower your risk management committee with decision-making authority to navigate uncertain economic headwinds. You may want to reconsider your current committee and include more trusted senior-level managers.

Risk managers must react to the current economic climate as it evolves. Business continuity plans may need revision as new variables enter the equation. Empowering this committee with authority to enact changes as necessary will create an agile response that will help execute pre-made plans or revise them when needed. 

Additionally, the committee must be transparent, communicative, and consistent with other decision-makers and the workforce. Recessions tend to harm morale, but understanding what the company is doing to navigate them can help keep the workforce productive.

Thoroughly Analyze Your Workforce

Salaries, wages, and benefits are significant expenses that most companies face. However, they’re also a critical element of the entire operation. You need a workforce and the specialized skills many of them possess. 

However, as you look toward an upcoming recession and its varying severity, it’s essential to analyze your workforce thoroughly. It’s never easy to lay off employees, but doing so may ensure the company's health. 

Create several business continuity plans that include the possibility of layoffs, compensation updates, and hiring freezes. Dictate what metrics will warrant any workforce changes, both internal and external.

Assess and Understand Your Customers & Vendors

Your company depends on customers to generate revenue. Additionally, you likely depend on vendors to supply necessary materials, goods, or services to serve your customers. 

Your risk management planning should include what factors will potentially reduce your customer base. For example, do consumers view your product as a luxury that they can do without? Or do you make something essential that consumers will hesitate to cut? 

Try to understand what external factors directly impact your customer base. You can also include marketing campaigns to existing customers, such as an email campaign to help retain their business as prices increase or incomes decrease.

Similarly, how resilient are your vendors to an economic downturn? You may wish to conduct a new vendor risk assessment focusing on how vendors’ operational expenses and how prepared they are for a potential recession.

Avoid Models Focusing on the Past

It’s natural to make decisions based on historical data as a human instinct and risk management analysis. However, the past does not always dictate the future. For example, the future recession may not have the deep structural scars as the 2008 recession or the immediate world-changing effects of the pandemic's beginning. 

While the past is undoubtedly useful, it doesn’t dictate the future. Therefore, as you create or update business continuity plans and assess your risks, focus on the present conditions and what situations may occur in the future. Don’t make the mistake of anticipating a repeat of 2008, 2020, or even 1930. 

Prepare for Multiple Plausible Scenarios

It’s unknown how severe the recession will be. Some analysts are worried about ‘stagflation’ — a term for when the economy slows, but prices continue to rise. Decreasing wages and increasing costs is a recipe for a severe recession. However, it’s not a guarantee that this will occur. As a result, the upcoming recession may be shorter and milder than previous recessions. 

It’s wise to prepare business continuity plans that anticipate several possible scenarios. You likely prepare for different cyberattacks, including their attack vectors and impact severity — embrace the same mindset for recession risk management. 

Periods of Turmoil Also Create Opportunities to Thrive

Businesses with an agile risk management committee, business continuity plans for multiple plausible scenarios, and a firm understanding of their workforce expenses are better prepared to react to an uncertain recession. Additionally, understanding what external conditions may impact your consumers’ decisions and vendors’ health goes even further to anticipate to survive — and thrive. 

Businesses anticipating the future and reacting as it becomes a reality have a greater chance of thriving during a recession. As competition falters, your organization can fill in the void.

A holistic risk management solution that includes your risk appetite and contingency plans will allow for significantly faster decision-making than a convoluted system using spreadsheets, point solutions, and emails. When it comes to economic uncertainty, making decisions and deploying risk mitigation strategies quickly is essential for survival.

A comprehensive risk management platform will help decision-makers and stakeholders understand the present risk profile of the company and easily access continuity plans. Ready to improve your risk management? Schedule a demo with a risk management expert today to begin.

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