Businesses worried technology aimed at reducing risk could have opposite effect

16 February 2018 5 min. read
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According to new analysis, many financial professionals are increasingly weary of technology, as disruption resulting from innovations designed to streamline business may actually complicate it in unforeseen ways. 54% of executives now expect risk forecasting will become more difficult over the next three years, due to a variety of identifiable risks, such as cybersecurity, and key unknowns, such as market disruption.

The world is increasingly uncertain, as new technologies disrupt markets, cybercrime threats increase, and geopolitics shifts increasingly towards isolationism. Getting a hold on the risks is increasingly important for business strategy, while the number of tools to evaluate risks too expands. While most businesses cite these difficult circumstances as creating opportunities for them to exploit, executives are increasingly concerned about the considerable risks which innovative tools they employ to navigate these issues might bring to the table, themselves.

New analysis from Oliver Wyman, titled ‘2018 AFP Risk Survey Report’, evaluates the risk landscape evaluated by finance and treasury, covering a broad array of new technologies and their impact on risk strategy. The survey involved 614 Association of Financial Professionals respondents in senior-level positions.

Business risks

The report shows that there is considerable uncertainty among risk professionals regarding earnings, with 49% of respondents saying that the firm is exposed to more uncertainty versus three years previous, 40% saying that the risks remain relatively the same while 11% say that they are exposed to less uncertainty.

One way in which the risk has borne out, is increased stockpiling of cash to cover future uncertainties, while geopolitical concerns have created further areas of acute uncertainty among professions – particularly in the Korean peninsula. US policy too was noted as an area of concern, with reduced trade on the cards – including the prospect of a trade war – dampening spirits.

Difficulty of forecasting risks

However, the key risks remain uncertainties – whereby forecasting risks has become, on balance, more difficult. 5% of respondents say that such forecasts are significantly more difficult than three years ago, while 30% say that they are more difficult. Around 35% say that the risks remain the same, while 29% say that forecasts have become easier or significantly easier.

Uncertain future

The professionals also cite that determining risks in the future is likely to become increasingly difficult – when asked how difficult risk forecasting would be in three years’ time, 54% said that it expected to become more difficult while 16% said it would become easier.

Current and anticipated risks

Overall, the risk landscape is believed by respondents to see various changes, impacted at both the strategic and technological level. The most cited risks are strategic in nature, 65% of respondents put competitor and industry disruption in their top three, while a closely aligned risk – largely resulting from digitalisation, is cybersecurity risk, which was cited by 52% in the top three. Political risks, particularly in the US, was cited by 38% as current and 36% as a risk over the next three years.

Technological risks, financial risks and geopolitical risks all too saw relatively high incidences of top three risk citations – currently at 33%, 33% and 30% respectively.

New of increased risks from technology

The study suggests that the downsides of technological implementation at companies are increasingly being realised – the promise of riskless advance is turning, in some instances, into high-cost post exercises as companies need to shell out for cybersecurity, training and compliance for the likes of the GDPR.

Commenting on the results the authors write, “As the risk landscape becomes increasingly complex and interconnected, risks and their impacts are harder to forecast. To increase the efficiency of financial analysis and management in a rapidly changing business environment, finance and treasury professionals are turning to solutions provided by new technologies. But questions about these technologies continue. Ultimately, finance and treasury professionals must understand both the new technologies and the implications for their organisations.”