How Can Risk Exposure Impact A Company's Bottom Line?
The world continues to evolve on a daily basis. The exposure to risk has increased exponentially due to advancements in technology, geopolitical issues, the way we do work in today’s world, the labor shortage, and the impact of inflation on a global basis. How companies manage risk is critical to conducting business in a compliant manner as well as to ensuring they are prepared for any risk in the future. What is risk exposure? Risk exposure is the quantified potential loss from business activities currently underway or planned. The level of exposure is usually calculated by multiplying the probability of a risk incident occurring by the amount of its potential losses. Losses may include legal liability, property loss or damage, unexpected workforce turnover, changes in demand, payment of ransom to cybercriminals. Also included: non-compliant individual taxation and related payroll, GDPR (General Data Protection Regulation) compliance, or technology compliance. Lack of compliance with SOC2, ISO 27001, and HIPAA can also bring risk into the equation. These different types of risk exposure are ranked by business based on the type of loss to determine which losses are acceptable to unacceptable. What is the level of risk to the company, and can it tolerate that level based on the benefits and costs involved, or what risk appetite does it have. Types of Risk of Exposure Risk exposure can be pure risk or speculative. Pure risk exposure is one that impacts the company’s workforce – a natural disaster. Having a formal structure and control plan in place to mitigate such a disaster is the best way to minimize loss in the greatest degree. Speculative risk occurs when the company takes actions and there are consequences to those actions. Examples of this is the choice of a software platform, only later to realize the critical vulnerability of it, a choice to keep backups onsite only to have them infected by ransomware. Another example is to allow talent to work remotely without accounting for the taxation of their wages in home and host state or country. The Effects of Risk Exposure Compliance Exposure: Both legal and financial penalties by lack of failure to follow industry regulations and best practices. Company Brand: A company’s brand can be permanently damaged by not managing risk exposure properly. Security Breaches: This is a primary area of risk exposure particularly with stolen personal data this is illegally shared with others. Liability Concerns: Companies must be focused on all potential liabilities created by risks. This can range from data breaches and exposure, legal and fiscal compliance, service agreements, and much more.
The Future of Work Today’s business environment means risk exposure is on the rise. Companies should audit its infrastructure to identify areas of risk exposure. This ensures risk avoidance and allows the company to alter choices and make better decisions prior to any event occurring. Putting controls and strict processes in place that are monitored on a regular basis help support compliance while ensuring changes in government regulations are adhered to and updated. Being compliant should be a #1 priority and goal. Our Expertise MSI’s Consulting and Advisory Team supports the design and development of Risk Management and Compliance that align to company compliance goals. Our focus is helping organizations optimize and develop long-range strategies for success.