With the popularity of ChatGPT, I asked the artificial intelligence chatbot to compare Risk Management 1.0, 2.0 and 3.0. It says that risk management has evolved from a reactive and risk-centric approach (1.0) to a more proactive, integrated, and opportunity-focused approach (2.0) and further to a holistic, ecosystem-oriented, and adaptive approach (3.0). What a nice way to summarise the journey we have had so far.

Risk Management 1.0 –

• Focus – Risk management 1.0 primarily focuses on identifying and mitigating risks to protect the organization from potential harm.
• Reactive approach – It is often a reactive approach, where risks are addressed as they arise, and measures are taken to prevent or minimize their impact.
• Siloed implementation – Risk management 1.0 is typically implemented in separate business units or departments without strong coordination across the organization.
• Compliance-driven – The emphasis is on meeting regulatory and compliance requirements related to risk management.
• Risk avoidance – The primary strategy is to avoid risks or transfer them through insurance or other means.
• Risk-centric – It is primarily concerned with risks and their impacts, focusing on hazard-based risks.
• Hierarchical structure – Risk management 1.0 is often top-down, with risk decisions made by senior management.

Risk Management 2.0 –

• Focus – Risk management 2.0 shifts the focus from risk mitigation to integrating risk management into decision-making processes and overall business strategy.
• Proactive approach – It adopts a proactive approach, aiming to identify and manage risks before they materialize and impact the organization.
• Integration and collaboration – Risk management 2.0 promotes cross-functional collaboration and integration, involving various stakeholders throughout the organization.
• Risk-informed decision making – It aims to make risk-aware decisions, considering both potential risks and potential rewards.
• Opportunity-focused – Risk management 2.0 recognizes that risks also present opportunities for innovation, growth, and competitive advantage.
• Holistic view – It takes a holistic view of risk, considering not only hazard-based risks but also strategic, operational, financial, and reputational risks.
• Continuous improvement – Risk management 2.0 emphasizes a culture of continuous improvement and learning from incidents and near-misses to enhance risk management practices.

Risk Management 3.0 –

• Focus – Risk management 3.0 expands the scope beyond organizational boundaries and includes the broader ecosystem, considering interconnected risks and systemic issues.
• Integrated and adaptive approach – It seeks to integrate risk management into all aspects of the organization’s operations and adapt to dynamic and complex environments.
• Resilience-oriented – Risk management 3.0 emphasizes building resilience to withstand and recover from shocks and disruptions.
• Data-driven and predictive – It leverages advanced analytics, data-driven insights, and predictive modeling to anticipate and mitigate risks.
• Stakeholder engagement – Risk management 3.0 involves active engagement with internal and external stakeholders to understand and address their concerns and perspectives.
• Sustainability and ESG focus – It recognizes the importance of environmental, social, and governance (ESG) factors in managing risks and creating long-term value.
• Ethical and values-driven – Risk management 3.0 emphasizes ethical decision making and aligning risk management practices with organizational values and societal expectations.

ChatGPT goes on to say that while there isn’t a widely recognized framework or designation for Risk Management 4.0, it listed some potential advancements that could be considered in the context of risk management for Risk Management 4.0.

Hypothetical advancements for Risk Management 4.0 (which surprised me!) –

• Predictive Risk Analytics – Leveraging advanced data analytics, machine learning, and predictive modeling techniques to anticipate and predict emerging risks. This allows organizations to proactively address potential threats before they materialize and impact business operations.
• Real-time Risk Monitoring – Implementing real-time risk monitoring systems that continuously collect and analyze data from various sources to provide up-to-date risk insights. This enables organizations to identify and respond to risks in a timely manner, reducing the potential for negative impacts.
• Blockchain-enabled Risk Management – Utilizing blockchain technology to enhance risk management processes, particularly in areas such as supply chain management and data security. Blockchain’s distributed ledger technology can improve transparency, traceability, and trust in risk-related transactions and information sharing.
• Cyber Risk Intelligence – Developing advanced capabilities for monitoring and analyzing cyber risks, including threat intelligence gathering, vulnerability scanning, and automated incident response. This helps organizations stay ahead of evolving cyber threats and mitigate potential damages to their digital infrastructure.
• Integrated Risk Governance – Establishing integrated risk governance frameworks that ensure risk management is embedded within the organization’s overall governance structure. This involves aligning risk management strategies with corporate objectives, enhancing risk oversight, and promoting accountability at all levels.
• Resilience Engineering – Adopting a resilience-focused approach to risk management that emphasizes the organization’s ability to adapt and recover from disruptions. This includes designing robust systems, implementing redundancy measures, and fostering a culture of resilience throughout the organization.
• Cognitive Risk Management – Incorporating cognitive technologies, such as natural language processing and cognitive computing, to enhance risk assessment and decision-making processes. These technologies can analyze vast amounts of unstructured data, extract insights, and support risk professionals in making informed decisions.
• Scenario-based Risk Analysis – Conducting sophisticated scenario-based risk analysis that considers various plausible future scenarios and their potential impacts on the organization. This helps identify critical risks, develop appropriate response strategies, and enhance organizational preparedness.
• Risk Crowdsourcing – Engaging internal and external stakeholders, including employees, customers, and partners, in the risk management process through crowdsourcing initiatives. This allows for a broader perspective on risks, encourages proactive risk identification, and fosters a culture of collective risk ownership.
• Ecosystem Risk Management – Recognizing the interconnectedness of risks within complex ecosystems and collaborating with stakeholders across the value chain to manage shared risks. This involves building strong partnerships, information-sharing networks, and coordinated response mechanisms.

Three areas that stood out for me – blockchain-enabled risk management, cognitive risk management and ecosystem risk management – requires more thinking and unpacking.

What were some learnings you can take away?

Professional bio

As a Chartered Accountant with over 25 years of international risk management and corporate governance experience in the private, not-for-profit, and public sectors, Patrick helps individuals and organizations make better decisions to achieve better results as a corporate and personal trainer and coach at Practicalrisktraining.com.