Understanding Risk Assessment Practices at Manufacturing Companies
Organizations should establish a risk assessment program that fits into its unique culture and risks. Since change is constant and can occur suddenly, ongoing efforts to enhance the sophistication and variety of risk assessment techniques are needed.
This study, jointly conducted by Deloitte and MAPI, looks at how manufacturing companies are assessing and responding to risks today and in the future. It finds that the current operating environment demands a more analytical, agile, and clinical view of risk to effectively address the complexity and velocity of critical risks and disruptions to their businesses.
“The pace and impact of innovation, coupled with cybersecurity risk, creates a risk environment that must be carefully managed,” said Brian Clark, partner, Deloitte & Touche LLP, and co-author of the study. “Product innovation can rapidly make existing products obsolete, potentially delivering considerable value to the innovator while leaving the unprepared facing competitive disadvantages. Further, technological innovation enables the manufacturing business model more, but can present a strategic risk as well. For manufacturers to thrive amid the ever-changing risk landscape, a company’s risk assessment practices should align with those changes.”
Unique risk aspects manufacturers should consider
Defining what characteristics can set a company apart competitivelytoday and in the futureis critically important for risk management. Survey respondents ranked competitiveness drivers such as innovation and talent management as priority business risks, indicating leading practices in these areas may set a company apart. Additionally, risk management and data analyticsareas where internal audit and risk executives are making significant investmentswere also classified as competitiveness capabilities.
Supply chains are highly complex and continuously exposed to a variety of internal and external risks, and, if not managed carefully, can result in potential adverse impacts to manufacturers’ sales and brand reputations. The study indicates manufacturers should build resiliency into supply chains to address critical vulnerabilities proactively, as well as balance risk and costs to prevent or recover quickly from risk-related disruptions.
Implications of the skills gap in manufacturing can also pose a material impact on manufacturers’ growth and profitability. Internal audit can play a key strategic role in assessing programssuch as recruiting and retention initiatives, HR IT systems, and deployment of data analytics capabilities to monitor trendsdesigned to mitigate the anticipated talent shortage and skills gap risks.
Can today’s risk assessment techniques assess tomorrow’s top risks?
Survey respondents indicated a variety of successful and ineffective assessment practices.
Successful practices include
- periodic presentation of specific risk topics to the board committee tasked with governance; and
- integrating risk assessments into the strategic planning process with business units.
Least-effective practices include
- risk questionnaires or surveys that are too long or sent to too many people;
- accepting canned or repetitive risk mitigation responses; and
- risk assessments that are too narrowly focused.