Digital risks emanate from businesses’ reliance on technology. The more a company is dependent on digital transformation, the more it is exposed to the dark side of digital transformation. Even as companies and businesses attempt to assess digital risks, certain obstacles are proving to be towering over all. Here are five to consider:
1. Risk quantification problem
Quantifying digital risk is one of the biggest hurdles in risk assessment. This barrier is predominant for qualitative digital risks. Qualitative risks are quantified based on the judgment and discretion of the team involved.
In digital risk assessment, expert judgment is not always fair. Expert judgment of digital risk when quantifying is likely to be biased. The bias, in this case, emanates from the selective consideration of factors responsible for a qualitative risk.
Take, for example, insufficient digital skills of staff. This is a qualitative risk depending on many factors such as professional experience and level of education, among others. The risk of insufficient digital competence is difficult to quantify. In quantification, experts might consider experience as the only dashboard of quantification.
Quantifying digital risks is also an obstacle due to reliance on past data. Quantitative and quantitative digital risks are quantified based on verified past data or trends. Reliance on past data is a barrier, as the factor driving such a trend could have changed completely.
2. Absence of strategic alliances
Digital risk assessment is not a one-person job. Different stakeholders should help determine how to deal with identified digital risks. Ignoring any of these actors in the risk assessment increases failure in deciding the optimal risk treatment strategy.
A strategic alliance is a common obstacle when there is no risk assessment advisory committee. This occurs when risk owners in an organization do not recognize risk as a functional area of the business. Without the risk assessment advisory committee, the formal element of risk assessment is ignored, leaving room for inconsistencies. This prevents a formal determination of which risks should be managed by insurance and which digital risks can be tolerated.
3. Divergences in the definition of risks
As simple as that sounds, it is a major obstacle to digital risk assessment. The definition of digital risks is a barrier caused by a difference in understanding of the context of digital risks. When assessing digital risks, stakeholders might recognize the same risks but in a different context.
For example, in defining digital financial risk, some stakeholders might limit themselves to the context of customers, others might assume the context of partners, and others might assume the context of the business itself.
These discrepancies in defining a risk context are barriers for stakeholders assessing digital risk. Perception in the definition of risks also presents an obstacle to the assessment of a digital risk. Some stakeholders could perceive the definition of risks as a preliminary data to the treatment of risks. Others might see the definition of risk as the basis for quantifying risk. When stakeholders define the same digital risk differently, it becomes a barrier to risk assessment.
4. Failure to recognize and integrate the culture of an organization
Digital risk owners have a culture in their risk management. The digital risk assessment should support their overall risk management culture. For this reason, a company without a well-defined risk management culture cannot optimally allocate its resources for risk assessment.
One of these resources of risk management is the input of human labour. A company without a well-defined risk management culture is not strategic in issuing risk assessment instructions. As an extension, the stakeholders carrying out the risk assessment are not objective. Such a company suffers from a communication dysfunction in risk assessment. Risk assessors fail to read the same script as the tactical risk assessor team.
5. Poor formulation of the risk matrix
In a digital risk assessment, it is essential to have a risk matrix. A risk matrix is a tool that allows you to study the identified digital risks according to their probability and their consequences. Where the risk matrix is poorly formulated, there is poor categorization of identified digital risks.
An example is the miscategorization of risks in the risk matrix, where the risk is assumed to have high probability and low consequence when in the real sense it is low probability with high consequence risk.
When the risk matrix is poorly established, the digital risk audit becomes misleading. Bad risks are prioritized, giving low priority to the most critical digital opportunities. As a barrier to risk assessment, it leads to choosing the inappropriate method for dealing with the digital risk identified.