Risk management challenges: challenges for the future

What it is about

Juan Carlos Estepa Jiménez, of Nemesis, explained at the Second Annual Risk Conference (September 2024) the challenges of risk management in a complex and volatile environment and how to manage uncertainty.

The 20-slide presentation covers four blocks: where we come from (pandemic, geopolitical risks, economic crisis, climate change and technological innovation), how to manage uncertainty (distinguishing risk from uncertainty), where we are heading (with IIF survey results from chief risk officers and boards on priorities and emerging risks, and the evolving role of the CRO) and the conclusions.

Objectives

• Distinguish risk from uncertainty and which tools apply to each.
• Present the priorities and emerging risks that, according to cited surveys, will occupy chief risk officers and boards.
• Summarize the keys to forward-looking risk management.

Key takeaways

1. Following Frank Knight, risk is measurable with probability distributions; uncertainty is not and is addressed with scenarios and stress tests.
2. In the IIF surveys cited, cybersecurity appears as the top concern for chief risk officers (73%) and boards (69%) for the next 12 months.
3. Emerging risks over five years include climate and nature-related risks, the use of machine learning and AI, and disruption from new technologies.
4. The CRO's role becomes more strategic and cross-cutting: acting as watchtower and advisor to the board, developing the next generation of leaders and embedding a risk culture across the three lines of defense.
5. The keys for the future are forward-looking management, use of scenarios and stress tests, proactive management models, stronger team capabilities with independence and smart management of regulation.