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Risk signal identification, prioritisation and monitoring evaluation model

Building a robust understanding of the fast-evolving external economic environment and what it means for a leading automotive company and its supply chain.

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Background

We are living in some very turbulent times. A global pandemic, the Russia-Ukraine war, geopolitical tensions, rising nationalism, tech decoupling, regulatory changes and some genuinely disruptive technologies are just a few headline grabbers over the past few years. All bring risks and uncertainties that organisations need to be aware of, assess their readiness to respond and mitigate and have expert, outside independent advice and analysis on. Because, for companies who are prepared, who can predict the topics, trends, events and threats – and can influence outcomes – the risks can be mitigated, and the opportunities grasped.

The Challenge

Despite existing internal risk management processes, a major automotive manufacturer was unprepared for and failed to anticipate and mitigate significant risks and shocks that have significantly affected its operations in recent years, including its sales, supply chain and financing. One of the main reasons for this was that most of the input to the company’s enterprise risk management processes was internally generated and lacked independent, quantitative, expert and specialist contributions from outside the organisation.

The manufacturer’s CEO recognised that a more robust and proactive approach was needed to better prioritise and respond to future opportunities, threats and megatrends coming towards the business. In a way that was aligned with the company’s new strategic vision, core sales markets and major production and supply chain locations. At the same time, the company’s internal enterprise risk management capabilities needed improvement.

The client hired Oxford Economics to develop a risk signal identification, prioritisation and monitoring evaluation model, working alongside Foresight Factory and Control Risks to assess a range of geopolitical, economic, social, technological, economic and legal risks. Oxford Economics focused on economic and supply chain risks across the client’s key sales and production markets, an area that needed particular attention in light of recent shocks and future outlooks and risks.

The Solution

Drawing on our extensive and unrivalled in-house research, data, scenarios and country and industry expertise, we undertook an initial long-list horizon scanning exercise, evaluating and prioritising risk signals across a PESTLE framework, focusing on the client’s core sales and production markets. This was used to create a tracking and early warning risk signal system.

Evaluation of risks was based on a scoring system for each risk signal in terms of its:

Likelihood
Impact on the client (bottom line revenue, costs and profitability, plus investment, corporate purpose and shorter-term strategic cost savings initiatives)
Timeframe and momentum

The client’s readiness to respond to and mitigate the risk was also identified by the client and incorporated.

Oxford Economics regularly updates the risk signals and participates in workshop sessions with the client’s team. As a result, new and emerging risks are added, and lower-priority risks are dropped from the risk signal model. In addition, risk scores and commentary are also updated, and risk signal monitoring data and analysis is provided from Oxford Economics’ subscription services.

In the future, API data feeds from subscription services may be set up to link relevant Oxford Economics data indicators directly to the client’s risk signal model.

The Result

The client uses the risk signal model for internal risk management, including identifying risk mitigation strategies and assessing business readiness to anticipate and respond to risks. It has also helped to identify ‘blind spots’ in the client’s understanding of critical business issues and identify where further work and new programmes are needed.

Ultimately, the client now has a much more comprehensive, proactive, up-to-date and robust understanding of the fast-evolving external economic environment and what this means to its business and the risks it and its supply chain face.

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