"Heat maps won't help": how to deal with Brexit uncertainty

Published on Wed, 23/10/2019 - 16:40

Risk professionals struggling with the extreme lack of visibility surrounding the UK's departure from the European Union should approach Brexit as an emerging risk, according Airmic chief executive John Ludlow.

Dealing with unknowns is part of the territory as a risk manager - it is integral to the job. But the level of uncertainty surrounding the possible outcomes and timings of Brexit is proving a huge challenge for even the most seasoned risk professionals, notes Mr Ludlow.

"The range of scenarios businesses must prepare for is vast. This in itself is a huge operational challenge, but it's also relevant for getting senior management buy-in. Some of our members report that the lack of clarity is making it hard to get their business to engage with the potential impact of Brexit on their organisations. Businesses that wait until the facts are known will have left it too late."

Create space to speculate

Mr Ludlow's advice to risk professionals is to treat Brexit as an emerging risk which requires an entirely different approach to traditional risks. Emerging risks are far harder to define, quantify and map, he says. "You know they are there but you can't necessarily see the form they are taking. Brexit falls into this category and it is very challenging for businesses, but they must not bury their heads in the sand."

Like other emerging risks, an organisation's approach to Brexit at the senior level requires a more imaginative approach, he explains. "Emerging risks are different in nature to traditional risks and businesses must deploy new techniques and new tools to deal with them. For Brexit, for example, formal assessments and heat maps should be exchanged for structured, creative discussions across business units. Boards need to create space to speculate and to think the unthinkable."

Britain has fundamentally changed

Most large businesses that may be operationally impacted by a hard Brexit have already put meticulous plans in place, he stresses. "Members I speak to have done all they can, whether it is through stockpiling, supply chain management or bolstering business continuity plans. On an operational level, they are ready.

"What concerns me, is a lack of preparedness for the wider impact of Brexit. Whatever the terms of Britain's departure, Brexit has fundamentally changed Britain: the economy; the internal political landscape; its commercial relationships with the rest of the world. Few businesses will be immune to these changes and they could have a far bigger long-term impact than what happens on day one after we leave. Heat maps aren't going to help you here - it needs a different approach."

Any emerging risk can also be an emerging opportunity, and the same is true for Brexit, he says. Businesses that proactively engage now and respond to the long-term impact of Brexit will have an edge over their competitors. He adds: "But to do this, boards and the risk community must be alert to all possibilities, which requires an open mind and a freedom of thinking."

Further reading:

Emerging Risks. New World. New solutions A Guide for Airmic members, in association with Marsh

The sixth sense of risk - Navigating the emerging risk landscape by Arthur D. Little