Study explains why 2020 was the riskiest year for businesses since Great Recession

North Carolina

RALEIGH, N.C. (WNCN) — The year 2020 was the riskiest for businesses in more than a decade, an annual study co-authored by a North Carolina State University professor claims.

The newest version of the State of Risk Oversight surveyed more than 400 companies to provide a clearer picture of the risks companies face and come up with ways to handle them.

READ THE STUDY HERE

The survey found 67 percent of organizations that responded described the volume and complexity of risks as increasing “mostly” to “extensively” — the highest rate ever recorded by the survey since it launched in 2009 amid the Great Recession.

The combination of the COVID-19 pandemic, social unrest, and the uncertainty of the 2020 elections created an environment of “record levels of having to figure out very complex issues,” said Mark Beasley, the director of the Enterprise Risk Management Initiative of N.C. State’s Poole College of Management.

Beasley expects 2021 and 2022 to be less risky than the past year was — at least in part because of the COVID-19 vaccines and because there is no presidential election this year.

“So I do think it’s going to feel less risky than it did March, April of 2020,” he said. “But don’t get complacent, because … any time we step forward in time, there’s more uncertainty. The further out in time, even more uncertainty. So it’s just a reality of life. So let’s just embrace it.

“And instead of being scared of risk, just say, ‘It’s going to happen. There are risks.’ Otherwise, if I don’t want risk, I’ve got to shut the door. … We’ve got a lot of other issues out there that are are going to present challenges. So we just want to say … be prepared.”

The study finds two-thirds of responding companies can’t claim to have complete enterprise risk management in place, with public companies and those related to finance making the most progress toward that goal.

“The issues that this reveals is that the world that we’re living in is just getting riskier,” Beasley said.

For example, a potential paradox: The companies that have handled the pandemic the best tended to be ones that made an easier transition to digital operations than those relying on face-to-face commerce.

But that shift online comes with its own set of risks — from ransomware to other cybersecurity issues.

“The risk landscape is not fixed,” Beasley said. “It is constantly evolving and so it ebbs and flows.”

It’s important for everyone to understand the risks businesses face because the ones that manage it better have the best shot of staying open.

“All the great work that entities are trying to do. … They’re working hard every day to grow the business to be successful, serve customers, serve the community,” Beasley said. “And it’s not quite …(accomplishing) what they intend because things are emerging that interrupt and organize.

“I think organizations are realizing that if we can be more proactive of how we think about risk, we can maybe navigate them better,” he added. “We will not avoid them, risk are going to always emerge and things are going to emerge that I haven’t thought about. But the more that I can be proactively aware of something and prepare for it means I can hopefully navigate that event when it happens.”

The report suggests that companies use data analytics to track possible problems, and have a chief risk officer — or a risk committee — specifically to look for potential issues.

“The real issue is the more I can manage risk proactively versus being blindsided,” Beasley said.

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