The recent UK general election might have settled the Brexit question, but uncertainty over the post-transition arrangement between the UK and the EU remains, with the risk of a no-deal scenario still a possibility.
The COVID-19 pandemic has brought uncertainty to a whole new level. While there is much debate as to whether governments and businesses could have been better prepared for the pandemic, it has had the effect of exacerbating trade-related risks, insolvency risks, people risks and cyber risks.
Published in 2019, the QBE Unpredictability Index tracked a set of indicators between 1987 to 2017 across five pillars: business, economic, environmental, political and societal to determine whether the world was becoming more unpredictable.
According to the Index, the world is a less predictable place for businesses. Almost all of the ‘least predictable years’ in the Index have occurred in the past 20 years, with the majority during the past ten years. Interestingly, the research also showed that periods of unpredictability come in five-year cycles and the next peak was expected to hit in 2020.
One of the most striking findings of our research was the interconnectedness of factors. Volatility in one area can have repercussions in another, prolonging a period of uncertainty and exacerbating its affect. With this in mind, businesses must consider the megatrends outlined in the recent Airmic survey report in terms of how they interact and agitate one another, and develop resilience plans that address the entirety of the risk and the reality of its impact.
Businesses and their leaders will not be able to rely on the defences of the past to manage the risks of the future. They will need to develop new skills and tools to identify, understand and mitigate risk, and they will need to be open to collaboration to build collective resilience.
The antidote to unpredictability
Risk management is part of the antidote to unpredictability but some threats are more existential. Adaptation is critical to surviving and thriving in uncertain times. Business strategies and operating models need to reflect changing environments and investment made (both time and money) to ensure companies have the wherewithal to deal with the risks of today and tomorrow.
As the size and complexity of risk grows, risk management and governance frameworks are becoming more sophisticated, and boards are increasingly demanding better information on risk. Challenging questions need to be asked about the sustainability of a business and its continued relevance to its customers. Equally, boards need to fully understand their worst-case scenarios and be confident that, balance sheet constraints notwithstanding, the steps taken to manage these risks are enough. Unpredictability is also a tremendous source of upside risk as it provides opportunities for those willing and able to be more creative and bold to thrive with new services, products and business models.
Preparation is the key to building resilience. Organisations that survive and succeed in an environment of enhanced unpredictability will be those that are best prepared.