We easily live in one of the most exciting eras ever. The rapid pace of technological development we have experienced has went beyond anything that used to be possible. If you go back a century, the pace completely changes. Think about it – there would be a new notable technology maybe once a decade. The reason progress was so slow is simple – everything had to be done manually. All the calculations had to be done by hand, all the products had to be made either by hand or measured by hand to ensure they were made according to the exact required specifications, and there was no possible way to run simulations.
Compare that to what we have now. Computers can calculate everything a thousand, maybe even more, times faster than humans ever could. Our machines can now build things based on exact measurements, thanks to sensors and computers built into the machines. We can also simulate how different things will work within digital systems before we ever spend resources to manufacture them. All this has resulted in our technological capabilities increasing exponentially.
Risk management has also developed exponentially as new technology was made available to risk managers. The way a risk manager works now is very different from the way risk managers worked just a decade ago. Let’s take a closer look at risk management processes and how they have evolved.
Risk Management before Information Technology
Understanding the way risk management practices have changed is only possible if we first look at how things used to be. If we go back before the advent of information technology, specifically the era before computers became a common sight in offices, risk management was a very hard job. It has always been critical for businesses to manage the risks that they face, and most businesses had risk managers who were assigned the responsibility of tracking and managing business risks.
The problem was that there were no tools to help them to their job. Managing risks requires monitoring the way business processes are being carried out, looking at market risks, keeping track of all known risks, and discovering new risks. Take a moment to think about how you would go about doing this job if you did not have access to a computer.
You can, theoretically, keep track of everything by keeping notes you have handwritten or typed. However, you couldn’t do much with the information you had. If you wanted to do any type of analysis on the data you had, you would have to manually note down the data and then do all the calculations by hand. This would take a lot of time and resources.
Secondly, there was no possible way to keep track of risks. You had to go to different business units, or contact them over the phone, and ask them to provide you the latest performance metrics. This meant that you would also need the different business units to keep track of performance metrics, which is in itself extremely hard to do without any digital systems. The risk managers of this era could only track the biggest risks and could often be blindsided by risks they had no way to track or mitigate.
Risk Management with Information Technology
As businesses got access to computers and office productivity software solutions, the situation changed. Risk managers could now keep information in digital documents, from where they could extract information with a simple copy and paste function. Keeping track of things also got exponentially easier thanks to spreadsheets. Spreadsheets also made it possible to analyze the data which the risk managers had recorded.
This had a profound effect on risk management. It was now possible to track and analyze risks to create business intelligence. Many risk managers are still using general-purpose solutions to keep track of risks. They record the required data in multiple documents and spreadsheets. The data is then combined manually into a single report which is then presented to the board.
The rise of risk technology
The rise of information technology provided tools that could be used to manage risks. However, even that step was decades ago, and we are now on the next step. There are dedicated risk management solutions which have built-in workflows for risk management. These solutions also deliver enhanced risk metrics, and functionalities like a live view of current risks, which isn’t possible if spreadsheets are being managed manually. Every year these risk solutions become smarter, and we can expect them to keep getting better in the upcoming years.
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