Digital risks emanate from business dependence on technology. The more dependent a business is on digital transformation, the higher the exposure to the dark side of digital transformation. Even as companies and businesses try to assess digital risks, some barriers prove dominant for all. Here are five to consider:
1. Problem of quantifying risks
Quantifying digital risks is one of the major barriers to risk assessment. This barrier is prevalent for qualitative digital risks. Qualitative risks are quantified based on the judgment and discretion of the team involved.
In assessing digital risks, experts’ judgment is not always right. Experts’ judgment of digital risk during quantification is likely to be biased. Biasness, in this case, emanates from the selective consideration of factors responsible for a qualitative risk.
Take, for instance, insufficient digital competencies among staff. This is a qualitative risk dependent on many factors like job experience and level of education, among others. The risk of insufficient digital competence is a hard one to quantify. In quantification, experts might consider experience as the only scorecard of quantification.
Quantifying digital risks is also a barrier because of the reliance on past data. Both quantitative and quantitative digital risks are quantified based on past verified data or trends. Reliance on past data is a barrier because the factor resulting in such a trend could have changed altogether.
2. Lack of strategic alliances
Assessment of digital risks is not a one-person job. Different stakeholders must contribute to determining how to treat identified digital risks. Ignoring any of these stakeholders in risk assessment increases failure in deciding the optimal risk treatment strategy.
A strategic alliance is a prevalent barrier where there is no risk assessment advisory committee. It happens when the owners of risks in an organization fail to recognize risks as a functional area in business. Without the risk assessment advisory committee, the formal element of risks assessment is ignored, leaving room for inconsistencies. It hinders formal determination of which risks should be managed through insurance and which digital risks can be tolerated.
3. Discrepancies in risks definition
As simple as it sounds, it is yet a core barrier to digital risk assessment. Defining digital risks is a barrier caused by a difference in understanding of digital risks context. In assessing digital risks, stakeholders could acknowledge the same risks but from a different context.
For example, in defining digital financial risk, some stakeholders could confine themselves within the context of customers, others could assume the context of partners, and others could presume the context of business itself.
These discrepancies in defining a risk context are barriers to stakeholders assessing a digital risk. The perception in risks definition also presents a barrier to assessing a digital risk. Some stakeholders could perceive risk definition as a predecessor input for risk treatment. Others could perceive risk definition as the basis of risk quantification. When stakeholders define the same digital risk differently, it becomes a barrier to risk assessment.
4. Failure to recognize and integrate an organization’s culture
Owners of digital risks have a culture in their risk management. Assessment of digital risks must support their overall culture in risk management. For this reason, an enterprise without a well-defined risk management culture cannot optimally distribute its resources for risk assessment.
One of such resources of risk management is the human labor input. A company without a well-defined risk management culture is not strategic in issuing risk assessment instructions. In extension, stakeholders conducting risks assessment are not objective. Such a company suffers from dysfunctional communication in risk assessment. Leaders in risk assessment fail to read from the same script as the team responsible for tactical risk assessment.
5. Poor formulation of risk matrix
In an assessment of digital risks, it is vital to have a risk matrix. A risk matrix is a tool that helps to study identified digital risks based on their likelihood and consequence. Where the risks matrix is poorly formulated, there is the wrong categorization of identified digital risks.
An example is the wrong categorization of risks in the risk matrix, where risk is assumed to have high likelihood and low consequence when in the real sense, it is a low likelihood with high consequence risk.
When the risk matrix is wrongly drawn, the digital risks audit becomes misleading. The wrong risks are prioritized, giving small priority to the most critical digital chances. As a barrier to risk assessment, it results in choosing the inappropriate method of treating identified digital risk.