The Power of Rolling Risk Assessments

In today’s lightning-fast business environment, the ability to effectively manage risks on the fly is crucial for the long-term success and sustainability of any company.

Traditionally, companies have relied on conducting periodic risk assessments, often on an annual or semi-annual basis. With the dynamic nature of risks in today’s business atmosphere, though, organizations are increasingly turning to a more agile and proactive approach known as rolling risk assessments. This continuous evaluation of major risks enables companies to stay ahead of potential threats and opportunities, adapt to fluctuating circumstances, and make informed decisions in a timely manner.

The Rolling risk assessment is a risk management practice that involves an ongoing and iterative evaluation of the major risks a company faces. Unlike the conventional approach of conducting risk assessments at fixed intervals, rolling risk assessment creates a continuous feedback loop, allowing organizations to identify, analyze, and respond to risks in near real-time.

There are four elements that are required in order to enable rolling risk assessments. They are:

1. Continuous Assessment: The strategy involves ongoing assessment and monitoring of risks, ensuring that risk profiles remain up to date and relevant.
2. Dynamic Risk Response: It enables organizations to adapt and respond to changing risk landscapes promptly.
3. Real-Time Risk Insights: The strategy provides real-time or near-real-time risk information, allowing for timely decision-making and proactive risk mitigation.
4. Integration with Business Processes: The strategy integrates risk management seamlessly into existing business processes, ensuring risk considerations are embedded in day-to-day operations.

Advantages of Rolling Risk Assessments

There are several advantages to adopting rolling or continuous risk assessments, including enabling faster and better decision making and being better able to adapt to rapidly changing risk environments. Consider how fast the adoption of artificial intelligence is moving, for example. If a company conducted an annual risk assessment last fall to set its internal audit plan for 2023, it might not have included AI as part of the top risks the company should be responding to. Over the last few months, however, AI has risen dramatically in importance, particularly at technology-centric companies to the point where it is what everyone is talking about. Even if AI was on the company’s radar screen last year, the aspects that matter most have changed rapidly and continue to evolve at breakneck pace.

1. Timely Risk Identification: By adopting a rolling risk assessment process, companies gain the ability to identify risks as they emerge or evolve, rather than waiting for an annual or semi-annual assessment cycle. This proactive approach enables organizations to detect risks early, reducing the likelihood of them turning into significant issues.
2. Agility and Adaptability: Rolling risk assessment empowers companies to be more agile and adaptable in their risk management efforts. By constantly monitoring the business environment, internal processes, and external factors, organizations can quickly respond to changes and adjust their risk mitigation strategies accordingly. This flexibility is crucial in today’s rapidly changing markets.
3. Improved Decision-Making: Continuous risk assessment provides decision-makers with real-time insights into the current risk landscape. By having up-to-date information on major risks, organizations can make informed decisions, allocate resources effectively, and prioritize risk mitigation efforts. This enhances overall decision-making capabilities across the organization.
4. Integration with Business Processes: Rolling risk assessment can be seamlessly integrated into existing business processes, becoming a part of the company’s DNA. By incorporating risk assessment as an ongoing activity, it becomes ingrained in the day-to-day operations, promoting a risk-aware culture and ensuring that risk management is a shared responsibility across the organization.
5. Risk Mitigation: The strategy facilitates the identification and implementation of targeted risk mitigation measures, reducing the likelihood and impact of potential risks.
6. Improved Resilience: By staying ahead of emerging risks, organizations can enhance their resilience to potential disruptions, improving their ability to withstand and recover from adverse events.
7. Competitive Advantage: The Rolling Risk Strategy allows organizations to proactively address risks, enhancing their reputation, stakeholder confidence, and competitive edge in the market.
8. Cost Reduction: By identifying risks early on and taking appropriate preventive actions, organizations can minimize potential financial losses, legal liabilities, and reputational damage, resulting in cost savings.
9. Stakeholder Trust: Demonstrating a proactive and robust risk management approach helps build trust and credibility among stakeholders, including customers, investors, and regulatory authorities.

Implementing Rolling Risk Assessments

Adopting a rolling risk assessment process is a proactive approach that enables companies to continuously evaluate and address the major risks they face. Unlike traditional risk assessments conducted annually or semi-annually, a rolling risk assessment process ensures that risks are regularly monitored and managed in a dynamic business environment. To adopt a rolling risk assessment process effectively, companies can consider the following steps:

1. Define Risk Categories: Identify the key risk categories that are relevant to the organization. These categories may include operational, financial, strategic, compliance, or reputational risks, among others.
2. Establish Risk Evaluation Criteria: Develop clear criteria for assessing and prioritizing risks within each category. Consider factors such as likelihood, impact, velocity, and interdependencies to ensure a comprehensive evaluation.
3. Establish a Risk Management Framework: To adopt a rolling risk assessment process, companies should establish a robust risk management framework. This framework includes defining risk appetite, setting clear objectives, establishing risk management policies and procedures, and assigning roles and responsibilities.
4. Implement a Risk Monitoring System: Utilize technology and data-driven tools to monitor and capture risk-related information in real-time. This may involve leveraging analytics, automated risk registers, incident reporting systems, and other relevant solutions. It’s important during this stage to involve front-line managers (who actually  “own” the risks) in the risk-identification and monitoring process.
5. Foster a Risk-Aware Culture: Promote a culture of risk awareness and accountability throughout the organization. Encourage employees at all levels to report risks, share insights, and actively participate in the risk assessment process.
6. Continuous Improvement: Regularly review and refine the rolling risk assessment process to enhance its effectiveness. Incorporate feedback from stakeholders, adapt to changing business needs, and embrace emerging best practices in risk management.
7. Continuous Monitoring: Implement a system that allows for continuous monitoring of identified risks. This can involve using technology solutions, establishing regular risk review meetings, conducting periodic risk assessments, and leveraging real-time data and analytics to detect and assess risks.
8. Stay Informed: To effectively evaluate risks on an ongoing basis, companies need to stay informed about internal and external factors that may impact the risk landscape. This includes monitoring industry trends, economic indicators, regulatory changes, technological advancements, and emerging risks. Regularly gather information from reliable sources, conduct internal assessments, and engage with stakeholders to gain insights and update risk profiles.
9. Integrated Approach: Integrate the rolling risk assessment process into your organization’s overall decision-making and strategic planning processes. Ensure that risk considerations are embedded in the decision-making framework, such as investment decisions, product development, expansion into new markets, and major business initiatives. By incorporating risk assessment into key business processes, companies can make informed decisions that balance risk and reward.
10. Communication and Training: Promote a risk-aware culture by fostering open communication and providing training on risk management principles and practices. Educate employees at all levels about the importance of risk assessment, their role in identifying and managing risks, and the benefits of a proactive approach. Encourage employees to report potential risks and provide channels for anonymous reporting to facilitate the identification of emerging risks.

Limitations of Rolling Risk Assessments

The Rolling Risk Strategy is a risk management approach that involves continuously assessing and adapting risk mitigation measures as new risks emerge. While this strategy offers several benefits, it also has certain limitations. Here are some limitations to consider when implementing a Rolling Risk Strategy:

1. Time and Resource Constraints: Implementing a Rolling Risk Strategy requires a significant investment of time, effort, and resources. Continuously monitoring and reassessing risks can be time-consuming, especially for organizations with limited resources or complex risk landscapes. It may be challenging to allocate sufficient resources to consistently update risk assessments and implement appropriate mitigation measures.
2. Risk Identification Challenges: Identifying emerging risks and incorporating them into the risk assessment process can be challenging. New risks may not be immediately apparent or may not fit into existing risk frameworks. It requires a proactive and forward-thinking approach to anticipate and identify emerging risks, which may involve staying updated with industry trends, regulatory changes, and technological advancements.
3. Data Availability and Quality: Effective risk management relies on accurate and timely data. However, obtaining reliable data for assessing and monitoring risks can be a limitation. Organizations may face data availability challenges, especially for emerging risks or risks with limited historical data. Additionally, the quality and completeness of the data collected can impact the accuracy of risk assessments and the effectiveness of risk mitigation measures.
4. Decision-Making Complexity: A Rolling Risk Strategy involves making decisions based on real-time or near-real-time risk information. This can introduce complexities, as decision-makers need to interpret and analyze the data to determine appropriate risk responses. Rapid decision-making may also lead to increased pressure and the potential for errors or oversights if not handled carefully.
5. Change Management: Implementing a Rolling Risk Strategy requires a culture of adaptability and change within the organization. Employees need to be open to embracing new risk management approaches, continuously updating risk registers, and implementing evolving risk mitigation measures. Resistance to change or lack of awareness and understanding of the strategy may hinder its successful implementation.
6. Integration with Existing Processes: Rolling Risk Strategies should align with existing risk management processes and integrate seamlessly into organizational workflows. However, this integration can be challenging, particularly in large or complex organizations with established risk management frameworks. Ensuring the strategy complements existing risk management practices and does not create duplication or confusion requires careful planning and coordination.
7. Overemphasis on Short-Term Risks: Continuous monitoring and frequent updates may lead to a focus on short-term risks rather than long-term strategic risks. It is important to strike a balance between immediate risk concerns and strategic risks that may have a longer-term impact on the organization’s objectives and sustainability.

Despite these limitations, the Rolling Risk Strategy offers the advantage of adaptability and agility in addressing emerging risks. Organizations should carefully consider these limitations and tailor their risk management approach to align with their specific circumstances, risk profile, and available resources.

In today’s fast-paced and uncertain business landscape, companies must embrace a more agile and proactive approach to risk management. Rolling risk assessments offer a powerful solution by enabling organizations to continuously evaluate major risks, adapt quickly to changing circumstances, and make informed decisions in a timely manner. By implementing a rolling risk assessment process and integrating it into the fabric of the organization, companies can build a robust risk management framework that enhances resilience, drives sustainable growth, and safeguards long-term success. 

Pratik Patawari is a managing partner at ALP & Associates, a management consulting firm based in India. He has more than eight years of experience in internal auditor and risk management and has advised several companies on improving compliance and strengthening their control environments.