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Enterprise Risk Management Case Studies: Heroes and Zeros

By Andy Marker | April 7, 2021

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We’ve compiled more than 20 case studies of enterprise risk management programs that illustrate how companies can prevent significant losses yet take risks with more confidence.   

Included on this page, you’ll find case studies and examples by industry , case studies of major risk scenarios (and company responses), and examples of ERM successes and failures .

Enterprise Risk Management Examples and Case Studies

With enterprise risk management (ERM) , companies assess potential risks that could derail strategic objectives and implement measures to minimize or avoid those risks. You can analyze examples (or case studies) of enterprise risk management to better understand the concept and how to properly execute it.

The collection of examples and case studies on this page illustrates common risk management scenarios by industry, principle, and degree of success. For a basic overview of enterprise risk management, including major types of risks, how to develop policies, and how to identify key risk indicators (KRIs), read “ Enterprise Risk Management 101: Programs, Frameworks, and Advice from Experts .”

Enterprise Risk Management Framework Examples

An enterprise risk management framework is a system by which you assess and mitigate potential risks. The framework varies by industry, but most include roles and responsibilities, a methodology for risk identification, a risk appetite statement, risk prioritization, mitigation strategies, and monitoring and reporting.

To learn more about enterprise risk management and find examples of different frameworks, read our “ Ultimate Guide to Enterprise Risk Management .”

Enterprise Risk Management Examples and Case Studies by Industry

Though every firm faces unique risks, those in the same industry often share similar risks. By understanding industry-wide common risks, you can create and implement response plans that offer your firm a competitive advantage.

Enterprise Risk Management Example in Banking

Toronto-headquartered TD Bank organizes its risk management around two pillars: a risk management framework and risk appetite statement. The enterprise risk framework defines the risks the bank faces and lays out risk management practices to identify, assess, and control risk. The risk appetite statement outlines the bank’s willingness to take on risk to achieve its growth objectives. Both pillars are overseen by the risk committee of the company’s board of directors.  

Risk management frameworks were an important part of the International Organization for Standardization’s 31000 standard when it was first written in 2009 and have been updated since then. The standards provide universal guidelines for risk management programs.  

Risk management frameworks also resulted from the efforts of the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The group was formed to fight corporate fraud and included risk management as a dimension. 

Once TD completes the ERM framework, the bank moves onto the risk appetite statement. 

The bank, which built a large U.S. presence through major acquisitions, determined that it will only take on risks that meet the following three criteria:

• The risk fits the company’s strategy, and TD can understand and manage those risks. 
• The risk does not render the bank vulnerable to significant loss from a single risk.
• The risk does not expose the company to potential harm to its brand and reputation. 

Some of the major risks the bank faces include strategic risk, credit risk, market risk, liquidity risk, operational risk, insurance risk, capital adequacy risk, regulator risk, and reputation risk. Managers detail these categories in a risk inventory. 

The risk framework and appetite statement, which are tracked on a dashboard against metrics such as capital adequacy and credit risk, are reviewed annually. 

TD uses a three lines of defense (3LOD) strategy, an approach widely favored by ERM experts, to guard against risk. The three lines are as follows:

• A business unit and corporate policies that create controls, as well as manage and monitor risk
• Standards and governance that provide oversight and review of risks and compliance with the risk appetite and framework 
• Internal audits that provide independent checks and verification that risk-management procedures are effective

Enterprise Risk Management Example in Pharmaceuticals

Drug companies’ risks include threats around product quality and safety, regulatory action, and consumer trust. To avoid these risks, ERM experts emphasize the importance of making sure that strategic goals do not conflict. 

For Britain’s GlaxoSmithKline, such a conflict led to a breakdown in risk management, among other issues. In the early 2000s, the company was striving to increase sales and profitability while also ensuring safe and effective medicines. One risk the company faced was a failure to meet current good manufacturing practices (CGMP) at its plant in Cidra, Puerto Rico. 

CGMP includes implementing oversight and controls of manufacturing, as well as managing the risk and confirming the safety of raw materials and finished drug products. Noncompliance with CGMP can result in escalating consequences, ranging from warnings to recalls to criminal prosecution. 

GSK’s unit pleaded guilty and paid $750 million in 2010 to resolve U.S. charges related to drugs made at the Cidra plant, which the company later closed. A fired GSK quality manager alerted regulators and filed a whistleblower lawsuit in 2004. In announcing the consent decree, the U.S. Department of Justice said the plant had a history of bacterial contamination and multiple drugs created there in the early 2000s violated safety standards.

According to the whistleblower, GSK’s ERM process failed in several respects to act on signs of non-compliance with CGMP. The company received warning letters from the U.S. Food and Drug Administration in 2001 about the plant’s practices, but did not resolve the issues. 

Additionally, the company didn’t act on the quality manager’s compliance report, which advised GSK to close the plant for two weeks to fix the problems and notify the FDA. According to court filings, plant staff merely skimmed rejected products and sold them on the black market. They also scraped by hand the inside of an antibiotic tank to get more product and, in so doing, introduced bacteria into the product.

Enterprise Risk Management Example in Consumer Packaged Goods

Mars Inc., an international candy and food company, developed an ERM process. The company piloted and deployed the initiative through workshops with geographic, product, and functional teams from 2003 to 2012. 

Driven by a desire to frame risk as an opportunity and to work within the company’s decentralized structure, Mars created a process that asked participants to identify potential risks and vote on which had the highest probability. The teams listed risk mitigation steps, then ranked and color-coded them according to probability of success. 

Larry Warner, a Mars risk officer at the time, illustrated this process in a case study . An initiative to increase direct-to-consumer shipments by 12 percent was colored green, indicating a 75 percent or greater probability of achievement. The initiative to bring a new plant online by the end of Q3 was coded red, meaning less than a 50 percent probability of success. 

The company’s results were hurt by a surprise at an operating unit that resulted from a so-coded red risk identified in a unit workshop. Executives had agreed that some red risk profile was to be expected, but they decided that when a unit encountered a red issue, it must be communicated upward when first identified. This became a rule. 

This process led to the creation of an ERM dashboard that listed initiatives in priority order, with the profile of each risk faced in the quarter, the risk profile trend, and a comment column for a year-end view. 

According to Warner, the key factors of success for ERM at Mars are as follows:

• The initiative focused on achieving operational and strategic objectives rather than compliance, which refers to adhering to established rules and regulations.
• The program evolved, often based on requests from business units, and incorporated continuous improvement. 
• The ERM team did not overpromise. It set realistic objectives.
• The ERM team periodically surveyed business units, management teams, and board advisers.

Enterprise Risk Management Example in Retail

Walmart is the world’s biggest retailer. As such, the company understands that its risk makeup is complex, given the geographic spread of its operations and its large number of stores, vast supply chain, and high profile as an employer and buyer of goods. 

In the 1990s, the company sought a simplified strategy for assessing risk and created an enterprise risk management plan with five steps founded on these four questions:

• What are the risks?
• What are we going to do about them?
• How will we know if we are raising or decreasing risk?
• How will we show shareholder value?

The process follows these five steps:

• Risk Identification: Senior Walmart leaders meet in workshops to identify risks, which are then plotted on a graph of probability vs. impact. Doing so helps to prioritize the biggest risks. The executives then look at seven risk categories (both internal and external): legal/regulatory, political, business environment, strategic, operational, financial, and integrity. Many ERM pros use risk registers to evaluate and determine the priority of risks. You can download templates that help correlate risk probability and potential impact in “ Free Risk Register Templates .”
• Risk Mitigation: Teams that include operational staff in the relevant area meet. They use existing inventory procedures to address the risks and determine if the procedures are effective.
• Action Planning: A project team identifies and implements next steps over the several months to follow.
• Performance Metrics: The group develops metrics to measure the impact of the changes. They also look at trends of actual performance compared to goal over time.
• Return on Investment and Shareholder Value: In this step, the group assesses the changes’ impact on sales and expenses to determine if the moves improved shareholder value and ROI.

To develop your own risk management planning, you can download a customizable template in “ Risk Management Plan Templates .”

Enterprise Risk Management Example in Agriculture

United Grain Growers (UGG), a Canadian grain distributor that now is part of Glencore Ltd., was hailed as an ERM innovator and became the subject of business school case studies for its enterprise risk management program. This initiative addressed the risks associated with weather for its business. Crop volume drove UGG’s revenue and profits. 

In the late 1990s, UGG identified its major unaddressed risks. Using almost a century of data, risk analysts found that extreme weather events occurred 10 times as frequently as previously believed. The company worked with its insurance broker and the Swiss Re Group on a solution that added grain-volume risk (resulting from weather fluctuations) to its other insured risks, such as property and liability, in an integrated program. 

The result was insurance that protected grain-handling earnings, which comprised half of UGG’s gross profits. The greater financial stability significantly enhanced the firm’s ability to achieve its strategic objectives. 

Since then, the number and types of instruments to manage weather-related risks has multiplied rapidly. For example, over-the-counter derivatives, such as futures and options, began trading in 1997. The Chicago Mercantile Exchange now offers weather futures contracts on 12 U.S. and international cities. 

Weather derivatives are linked to climate factors such as rainfall or temperature, and they hedge different kinds of risks than do insurance. These risks are much more common (e.g., a cooler-than-normal summer) than the earthquakes and floods that insurance typically covers. And the holders of derivatives do not have to incur any damage to collect on them.

These weather-linked instruments have found a wider audience than anticipated, including retailers that worry about freak storms decimating Christmas sales, amusement park operators fearing rainy summers will keep crowds away, and energy companies needing to hedge demand for heating and cooling.

This area of ERM continues to evolve because weather and crop insurance are not enough to address all the risks that agriculture faces. Arbol, Inc. estimates that more than $1 trillion of agricultural risk is uninsured. As such, it is launching a blockchain-based platform that offers contracts (customized by location and risk parameters) with payouts based on weather data. These contracts can cover risks associated with niche crops and small growing areas.

Enterprise Risk Management Example in Insurance

Switzerland’s Zurich Insurance Group understands that risk is inherent for insurers and seeks to practice disciplined risk-taking, within a predetermined risk tolerance. 

The global insurer’s enterprise risk management framework aims to protect capital, liquidity, earnings, and reputation. Governance serves as the basis for risk management, and the framework lays out responsibilities for taking, managing, monitoring, and reporting risks. 

The company uses a proprietary process called Total Risk Profiling (TRP) to monitor internal and external risks to its strategy and financial plan. TRP assesses risk on the basis of severity and probability, and helps define and implement mitigating moves. 

Zurich’s risk appetite sets parameters for its tolerance within the goal of maintaining enough capital to achieve an AA rating from rating agencies. For this, the company uses its own Zurich economic capital model, referred to as Z-ECM. The model quantifies risk tolerance with a metric that assesses risk profile vs. risk tolerance. 

To maintain the AA rating, the company aims to hold capital between 100 and 120 percent of capital at risk. Above 140 percent is considered overcapitalized (therefore at risk of throttling growth), and under 90 percent is below risk tolerance (meaning the risk is too high). On either side of 100 to 120 percent (90 to 100 percent and 120 to 140 percent), the insurer considers taking mitigating action. 

Zurich’s assessment of risk and the nature of those risks play a major role in determining how much capital regulators require the business to hold. A popular tool to assess risk is the risk matrix, and you can find a variety of templates in “ Free, Customizable Risk Matrix Templates .”

In 2020, Zurich found that its biggest exposures were market risk, such as falling asset valuations and interest-rate risk; insurance risk, such as big payouts for covered customer losses, which it hedges through diversification and reinsurance; credit risk in assets it holds and receivables; and operational risks, such as internal process failures and external fraud.

Enterprise Risk Management Example in Technology

Financial software maker Intuit has strengthened its enterprise risk management through evolution, according to a case study by former Chief Risk Officer Janet Nasburg. 

The program is founded on the following five core principles:

• Use a common risk framework across the enterprise.
• Assess risks on an ongoing basis.
• Focus on the most important risks.
• Clearly define accountability for risk management.
• Commit to continuous improvement of performance measurement and monitoring. 

ERM programs grow according to a maturity model, and as capability rises, the shareholder value from risk management becomes more visible and important. 

The maturity phases include the following:

• Ad hoc risk management addresses a specific problem when it arises.
• Targeted or initial risk management approaches risks with multiple understandings of what constitutes risk and management occurs in silos. 
• Integrated or repeatable risk management puts in place an organization-wide framework for risk assessment and response. 
• Intelligent or managed risk management coordinates risk management across the business, using common tools. 
• Risk leadership incorporates risk management into strategic decision-making. 

Intuit emphasizes using key risk indicators (KRIs) to understand risks, along with key performance indicators (KPIs) to gauge the effectiveness of risk management. 

Early in its ERM journey, Intuit measured performance on risk management process participation and risk assessment impact. For participation, the targeted rate was 80 percent of executive management and business-line leaders. This helped benchmark risk awareness and current risk management, at a time when ERM at the company was not mature.

Conduct an annual risk assessment at corporate and business-line levels to plot risks, so the most likely and most impactful risks are graphed in the upper-right quadrant. Doing so focuses attention on these risks and helps business leaders understand the risk’s impact on performance toward strategic objectives. 

In the company’s second phase of ERM, Intuit turned its attention to building risk management capacity and sought to ensure that risk management activities addressed the most important risks. The company evaluated performance using color-coded status symbols (red, yellow, green) to indicate risk trend and progress on risk mitigation measures.

In its third phase, Intuit moved to actively monitoring the most important risks and ensuring that leaders modified their strategies to manage risks and take advantage of opportunities. An executive dashboard uses KRIs, KPIs, an overall risk rating, and red-yellow-green coding. The board of directors regularly reviews this dashboard.

Over this evolution, the company has moved from narrow, tactical risk management to holistic, strategic, and long-term ERM.

Enterprise Risk Management Case Studies by Principle

ERM veterans agree that in addition to KPIs and KRIs, other principles are equally important to follow. Below, you’ll find examples of enterprise risk management programs by principles.

ERM Principle #1: Make Sure Your Program Aligns with Your Values

Raytheon Case Study U.S. defense contractor Raytheon states that its highest priority is delivering on its commitment to provide ethical business practices and abide by anti-corruption laws.

Raytheon backs up this statement through its ERM program. Among other measures, the company performs an annual risk assessment for each function, including the anti-corruption group under the Chief Ethics and Compliance Officer. In addition, Raytheon asks 70 of its sites to perform an anti-corruption self-assessment each year to identify gaps and risks. From there, a compliance team tracks improvement actions. 

Every quarter, the company surveys 600 staff members who may face higher anti-corruption risks, such as the potential for bribes. The survey asks them to report any potential issues in the past quarter.

Also on a quarterly basis, the finance and internal controls teams review higher-risk profile payments, such as donations and gratuities to confirm accuracy and compliance. Oversight and compliance teams add other checks, and they update a risk-based audit plan continuously.

ERM Principle #2: Embrace Diversity to Reduce Risk

State Street Global Advisors Case Study In 2016, the asset management firm State Street Global Advisors introduced measures to increase gender diversity in its leadership as a way of reducing portfolio risk, among other goals. 

The company relied on research that showed that companies with more women senior managers had a better return on equity, reduced volatility, and fewer governance problems such as corruption and fraud. 

Among the initiatives was a campaign to influence companies where State Street had invested, in order to increase female membership on their boards. State Street also developed an investment product that tracks the performance of companies with the highest level of senior female leadership relative to peers in their sector. 

In 2020, the company announced some of the results of its effort. Among the 1,384 companies targeted by the firm, 681 added at least one female director.

ERM Principle #3: Do Not Overlook Resource Risks

Infosys Case Study India-based technology consulting company Infosys, which employees more than 240,000 people, has long recognized the risk of water shortages to its operations. 

India’s rapidly growing population and development has increased the risk of water scarcity. A 2020 report by the World Wide Fund for Nature said 30 cities in India faced the risk of severe water scarcity over the next three decades. 

Infosys has dozens of facilities in India and considers water to be a significant short-term risk. At its campuses, the company uses the water for cooking, drinking, cleaning, restrooms, landscaping, and cooling. Water shortages could halt Infosys operations and prevent it from completing customer projects and reaching its performance objectives. 

In an enterprise risk assessment example, Infosys’ ERM team conducts corporate water-risk assessments while sustainability teams produce detailed water-risk assessments for individual locations, according to a report by the World Business Council for Sustainable Development .

The company uses the COSO ERM framework to respond to the risks and decide whether to accept, avoid, reduce, or share these risks. The company uses root-cause analysis (which focuses on identifying underlying causes rather than symptoms) and the site assessments to plan steps to reduce risks. 

Infosys has implemented various water conservation measures, such as water-efficient fixtures and water recycling, rainwater collection and use, recharging aquifers, underground reservoirs to hold five days of water supply at locations, and smart-meter usage monitoring. Infosys’ ERM team tracks metrics for per-capita water consumption, along with rainfall data, availability and cost of water by tanker trucks, and water usage from external suppliers. 

In the 2020 fiscal year, the company reported a nearly 64 percent drop in per-capita water consumption by its workforce from the 2008 fiscal year. 

The business advantages of this risk management include an ability to open locations where water shortages may preclude competitors, and being able to maintain operations during water scarcity, protecting profitability.

ERM Principle #4: Fight Silos for Stronger Enterprise Risk Management

U.S. Government Case Study The terrorist attacks of September 11, 2001, revealed that the U.S. government’s then-current approach to managing intelligence was not adequate to address the threats — and, by extension, so was the government’s risk management procedure. Since the Cold War, sensitive information had been managed on a “need to know” basis that resulted in data silos. 

In the case of 9/11, this meant that different parts of the government knew some relevant intelligence that could have helped prevent the attacks. But no one had the opportunity to put the information together and see the whole picture. A congressional commission determined there were 10 lost operational opportunities to derail the plot. Silos existed between law enforcement and intelligence, as well as between and within agencies. 

After the attacks, the government moved toward greater information sharing and collaboration. Based on a task force’s recommendations, data moved from a centralized network to a distributed model, and social networking tools now allow colleagues throughout the government to connect. Staff began working across agency lines more often.

Enterprise Risk Management Examples by Scenario

While some scenarios are too unlikely to receive high-priority status, low-probability risks are still worth running through the ERM process. Robust risk management creates a culture and response capacity that better positions a company to deal with a crisis.

In the following enterprise risk examples, you will find scenarios and details of how organizations manage the risks they face.

Scenario: ERM and the Global Pandemic While most businesses do not have the resources to do in-depth ERM planning for the rare occurrence of a global pandemic, companies with a risk-aware culture will be at an advantage if a pandemic does hit. 

These businesses already have processes in place to escalate trouble signs for immediate attention and an ERM team or leader monitoring the threat environment. A strong ERM function gives clear and effective guidance that helps the company respond.

A report by Vodafone found that companies identified as “future ready” fared better in the COVID-19 pandemic. The attributes of future-ready businesses have a lot in common with those of companies that excel at ERM. These include viewing change as an opportunity; having detailed business strategies that are documented, funded, and measured; working to understand the forces that shape their environments; having roadmaps in place for technological transformation; and being able to react more quickly than competitors. 

Only about 20 percent of companies in the Vodafone study met the definition of “future ready.” But 54 percent of these firms had a fully developed and tested business continuity plan, compared to 30 percent of all businesses. And 82 percent felt their continuity plans worked well during the COVID-19 crisis. Nearly 50 percent of all businesses reported decreased profits, while 30 percent of future-ready organizations saw profits rise. 

Scenario: ERM and the Economic Crisis  The 2008 economic crisis in the United States resulted from the domino effect of rising interest rates, a collapse in housing prices, and a dramatic increase in foreclosures among mortgage borrowers with poor creditworthiness. This led to bank failures, a credit crunch, and layoffs, and the U.S. government had to rescue banks and other financial institutions to stabilize the financial system.

Some commentators said these events revealed the shortcomings of ERM because it did not prevent the banks’ mistakes or collapse. But Sim Segal, an ERM consultant and director of Columbia University’s ERM master’s degree program, analyzed how banks performed on 10 key ERM criteria. 

Segal says a risk-management program that incorporates all 10 criteria has these characteristics: 

• Risk management has an enterprise-wide scope.
• The program includes all risk categories: financial, operational, and strategic. 
• The focus is on the most important risks, not all possible risks. 
• Risk management is integrated across risk types.
• Aggregated metrics show risk exposure and appetite across the enterprise.
• Risk management incorporates decision-making, not just reporting.
• The effort balances risk and return management.
• There is a process for disclosure of risk.
• The program measures risk in terms of potential impact on company value.
• The focus of risk management is on the primary stakeholder, such as shareholders, rather than regulators or rating agencies.

In his book Corporate Value of Enterprise Risk Management , Segal concluded that most banks did not actually use ERM practices, which contributed to the financial crisis. He scored banks as failing on nine of the 10 criteria, only giving them a passing grade for focusing on the most important risks. 

Scenario: ERM and Technology Risk  The story of retailer Target’s failed expansion to Canada, where it shut down 133 loss-making stores in 2015, has been well documented. But one dimension that analysts have sometimes overlooked was Target’s handling of technology risk. 

A case study by Canadian Business magazine traced some of the biggest issues to software and data-quality problems that dramatically undermined the Canadian launch. 

As with other forms of ERM, technology risk management requires companies to ask what could go wrong, what the consequences would be, how they might prevent the risks, and how they should deal with the consequences. 

But with its technology plan for Canada, Target did not heed risk warning signs. 

In the United States, Target had custom systems for ordering products from vendors, processing items at warehouses, and distributing merchandise to stores quickly. But that software would need customization to work with the Canadian dollar, metric system, and French-language characters. 

Target decided to go with new ERP software on an aggressive two-year timeline. As Target began ordering products for the Canadian stores in 2012, problems arose. Some items did not fit into shipping containers or on store shelves, and information needed for customs agents to clear imported items was not correct in Target's system. 

Target found that its supply chain software data was full of errors. Product dimensions were in inches, not centimeters; height and width measurements were mixed up. An internal investigation showed that only about 30 percent of the data was accurate. 

In an attempt to fix these errors, Target merchandisers spent a week double-checking with vendors up to 80 data points for each of the retailer’s 75,000 products. They discovered that the dummy data entered into the software during setup had not been altered. To make any corrections, employees had to send the new information to an office in India where staff would enter it into the system. 

As the launch approached, the technology errors left the company vulnerable to stockouts, few people understood how the system worked, and the point-of-sale checkout system did not function correctly. Soon after stores opened in 2013, consumers began complaining about empty shelves. Meanwhile, Target Canada distribution centers overflowed due to excess ordering based on poor data fed into forecasting software. 

The rushed launch compounded problems because it did not allow the company enough time to find solutions or alternative technology. While the retailer fixed some issues by the end of 2014, it was too late. Target Canada filed for bankruptcy protection in early 2015. 

Scenario: ERM and Cybersecurity System hacks and data theft are major worries for companies. But as a relatively new field, cyber-risk management faces unique hurdles.

For example, risk managers and information security officers have difficulty quantifying the likelihood and business impact of a cybersecurity attack. The rise of cloud-based software exposes companies to third-party risks that make these projections even more difficult to calculate. 

As the field evolves, risk managers say it’s important for IT security officers to look beyond technical issues, such as the need to patch a vulnerability, and instead look more broadly at business impacts to make a cost benefit analysis of risk mitigation. Frameworks such as the Risk Management Framework for Information Systems and Organizations by the National Institute of Standards and Technology can help.  

Health insurer Aetna considers cybersecurity threats as a part of operational risk within its ERM framework and calculates a daily risk score, adjusted with changes in the cyberthreat landscape. 

Aetna studies threats from external actors by working through information sharing and analysis centers for the financial services and health industries. Aetna staff reverse-engineers malware to determine controls. The company says this type of activity helps ensure the resiliency of its business processes and greatly improves its ability to help protect member information.

For internal threats, Aetna uses models that compare current user behavior to past behavior and identify anomalies. (The company says it was the first organization to do this at scale across the enterprise.) Aetna gives staff permissions to networks and data based on what they need to perform their job. This segmentation restricts access to raw data and strengthens governance. 

Another risk initiative scans outgoing employee emails for code patterns, such as credit card or Social Security numbers. The system flags the email, and a security officer assesses it before the email is released.

Examples of Poor Enterprise Risk Management

Case studies of failed enterprise risk management often highlight mistakes that managers could and should have spotted — and corrected — before a full-blown crisis erupted. The focus of these examples is often on determining why that did not happen. 

ERM Case Study: General Motors

In 2014, General Motors recalled the first of what would become 29 million cars due to faulty ignition switches and paid compensation for 124 related deaths. GM knew of the problem for at least 10 years but did not act, the automaker later acknowledged. The company entered a deferred prosecution agreement and paid a $900 million penalty. 

Pointing to the length of time the company failed to disclose the safety problem, ERM specialists say it shows the problem did not reside with a single department. “Rather, it reflects a failure to properly manage risk,” wrote Steve Minsky, a writer on ERM and CEO of an ERM software company, in Risk Management magazine. 

“ERM is designed to keep all parties across the organization, from the front lines to the board to regulators, apprised of these kinds of problems as they become evident. Unfortunately, GM failed to implement such a program, ultimately leading to a tragic and costly scandal,” Minsky said.

Also in the auto sector, an enterprise risk management case study of Toyota looked at its problems with unintended acceleration of vehicles from 2002 to 2009. Several studies, including a case study by Carnegie Mellon University Professor Phil Koopman , blamed poor software design and company culture. A whistleblower later revealed a coverup by Toyota. The company paid more than $2.5 billion in fines and settlements.

ERM Case Study: Lululemon

In 2013, following customer complaints that its black yoga pants were too sheer, the athletic apparel maker recalled 17 percent of its inventory at a cost of $67 million. The company had previously identified risks related to fabric supply and quality. The CEO said the issue was inadequate testing. 

Analysts raised concerns about the company’s controls, including oversight of factories and product quality. A case study by Stanford University professors noted that Lululemon’s episode illustrated a common disconnect between identifying risks and being prepared to manage them when they materialize. Lululemon’s reporting and analysis of risks was also inadequate, especially as related to social media. In addition, the case study highlighted the need for a system to escalate risk-related issues to the board. 

ERM Case Study: Kodak 

Once an iconic brand, the photo film company failed for decades to act on the threat that digital photography posed to its business and eventually filed for bankruptcy in 2012. The company’s own research in 1981 found that digital photos could ultimately replace Kodak’s film technology and estimated it had 10 years to prepare. 

Unfortunately, Kodak did not prepare and stayed locked into the film paradigm. The board reinforced this course when in 1989 it chose as CEO a candidate who came from the film business over an executive interested in digital technology. 

Had the company acknowledged the risks and employed ERM strategies, it might have pursued a variety of strategies to remain successful. The company’s rival, Fuji Film, took the money it made from film and invested in new initiatives, some of which paid off. Kodak, on the other hand, kept investing in the old core business.

Case Studies of Successful Enterprise Risk Management

Successful enterprise risk management usually requires strong performance in multiple dimensions, and is therefore more likely to occur in organizations where ERM has matured. The following examples of enterprise risk management can be considered success stories. 

ERM Case Study: Statoil 

A major global oil producer, Statoil of Norway stands out for the way it practices ERM by looking at both downside risk and upside potential. Taking risks is vital in a business that depends on finding new oil reserves. 

According to a case study, the company developed its own framework founded on two basic goals: creating value and avoiding accidents.

The company aims to understand risks thoroughly, and unlike many ERM programs, Statoil maps risks on both the downside and upside. It graphs risk on probability vs. impact on pre-tax earnings, and it examines each risk from both positive and negative perspectives. 

For example, the case study cites a risk that the company assessed as having a 5 percent probability of a somewhat better-than-expected outcome but a 10 percent probability of a significant loss relative to forecast. In this case, the downside risk was greater than the upside potential.

ERM Case Study: Lego 

The Danish toy maker’s ERM evolved over the following four phases, according to a case study by one of the chief architects of its program:

• Traditional management of financial, operational, and other risks. Strategic risk management joined the ERM program in 2006. 
• The company added Monte Carlo simulations in 2008 to model financial performance volatility so that budgeting and financial processes could incorporate risk management. The technique is used in budget simulations, to assess risk in its credit portfolio, and to consolidate risk exposure. 
• Active risk and opportunity planning is part of making a business case for new projects before final decisions.
• The company prepares for uncertainty so that long-term strategies remain relevant and resilient under different scenarios. 

As part of its scenario modeling, Lego developed its PAPA (park, adapt, prepare, act) model. 

• Park: The company parks risks that occur slowly and have a low probability of happening, meaning it does not forget nor actively deal with them.
• Adapt: This response is for risks that evolve slowly and are certain or highly probable to occur. For example, a risk in this category is the changing nature of play and the evolution of buying power in different parts of the world. In this phase, the company adjusts, monitors the trend, and follows developments.
• Prepare: This category includes risks that have a low probability of occurring — but when they do, they emerge rapidly. These risks go into the ERM risk database with contingency plans, early warning indicators, and mitigation measures in place.
• Act: These are high-probability, fast-moving risks that must be acted upon to maintain strategy. For example, developments around connectivity, mobile devices, and online activity are in this category because of the rapid pace of change and the influence on the way children play. 

Lego views risk management as a way to better equip itself to take risks than its competitors. In the case study, the writer likens this approach to the need for the fastest race cars to have the best brakes and steering to achieve top speeds.

ERM Case Study: University of California 

The University of California, one of the biggest U.S. public university systems, introduced a new view of risk to its workforce when it implemented enterprise risk management in 2005. Previously, the function was merely seen as a compliance requirement.

ERM became a way to support the university’s mission of education and research, drawing on collaboration of the system’s employees across departments. “Our philosophy is, ‘Everyone is a risk manager,’” Erike Young, deputy director of ERM told Treasury and Risk magazine. “Anyone who’s in a management position technically manages some type of risk.”

The university faces a diverse set of risks, including cybersecurity, hospital liability, reduced government financial support, and earthquakes.  

The ERM department had to overhaul systems to create a unified view of risk because its information and processes were not linked. Software enabled both an organizational picture of risk and highly detailed drilldowns on individual risks. Risk managers also developed tools for risk assessment, risk ranking, and risk modeling. 

Better risk management has provided more than $100 million in annual cost savings and nearly $500 million in cost avoidance, according to UC officials. 

UC drives ERM with risk management departments at each of its 10 locations and leverages university subject matter experts to form multidisciplinary workgroups that develop process improvements.

APQC, a standards quality organization, recognized UC as a top global ERM practice organization, and the university system has won other awards. The university says in 2010 it was the first nonfinancial organization to win credit-rating agency recognition of its ERM program.

Examples of How Technology Is Transforming Enterprise Risk Management

Business intelligence software has propelled major progress in enterprise risk management because the technology enables risk managers to bring their information together, analyze it, and forecast how risk scenarios would impact their business.

ERM organizations are using computing and data-handling advancements such as blockchain for new innovations in strengthening risk management. Following are case studies of a few examples.

ERM Case Study: Bank of New York Mellon 

In 2021, the bank joined with Google Cloud to use machine learning and artificial intelligence to predict and reduce the risk that transactions in the $22 trillion U.S. Treasury market will fail to settle. Settlement failure means a buyer and seller do not exchange cash and securities by the close of business on the scheduled date. 

The party that fails to settle is assessed a daily financial penalty, and a high level of settlement failures can indicate market liquidity problems and rising risk. BNY says that, on average, about 2 percent of transactions fail to settle.

The bank trained models with millions of trades to consider every factor that could result in settlement failure. The service uses market-wide intraday trading metrics, trading velocity, scarcity indicators, volume, the number of trades settled per hour, seasonality, issuance patterns, and other signals. 

The bank said it predicts about 40 percent of settlement failures with 90 percent accuracy. But it also cautioned against overconfidence in the technology as the model continues to improve. 

AI-driven forecasting reduces risk for BNY clients in the Treasury market and saves costs. For example, a predictive view of settlement risks helps bond dealers more accurately manage their liquidity buffers, avoid penalties, optimize their funding sources, and offset the risks of failed settlements. In the long run, such forecasting tools could improve the health of the financial market. 

ERM Case Study: PwC

Consulting company PwC has leveraged a vast information storehouse known as a data lake to help its customers manage risk from suppliers.

A data lake stores both structured or unstructured information, meaning data in highly organized, standardized formats as well as unstandardized data. This means that everything from raw audio to credit card numbers can live in a data lake. 

Using techniques pioneered in national security, PwC built a risk data lake that integrates information from client companies, public databases, user devices, and industry sources. Algorithms find patterns that can signify unidentified risks.

One of PwC’s first uses of this data lake was a program to help companies uncover risks from their vendors and suppliers. Companies can violate laws, harm their reputations, suffer fraud, and risk their proprietary information by doing business with the wrong vendor. 

Today’s complex global supply chains mean companies may be several degrees removed from the source of this risk, which makes it hard to spot and mitigate. For example, a product made with outlawed child labor could be traded through several intermediaries before it reaches a retailer. 

PwC’s service helps companies recognize risk beyond their primary vendors and continue to monitor that risk over time as more information enters the data lake.

ERM Case Study: Financial Services

As analytics have become a pillar of forecasting and risk management for banks and other financial institutions, a new risk has emerged: model risk . This refers to the risk that machine-learning models will lead users to an unreliable understanding of risk or have unintended consequences.

For example, a 6 percent drop in the value of the British pound over the course of a few minutes in 2016 stemmed from currency trading algorithms that spiralled into a negative loop. A Twitter-reading program began an automated selling of the pound after comments by a French official, and other selling algorithms kicked in once the currency dropped below a certain level.

U.S. banking regulators are so concerned about model risk that the Federal Reserve set up a model validation council in 2012 to assess the models that banks use in running risk simulations for capital adequacy requirements. Regulators in Europe and elsewhere also require model validation.

A form of managing risk from a risk-management tool, model validation is an effort to reduce risk from machine learning. The technology-driven rise in modeling capacity has caused such models to proliferate, and banks can use hundreds of models to assess different risks. 

Model risk management can reduce rising costs for modeling by an estimated 20 to 30 percent by building a validation workflow, prioritizing models that are most important to business decisions, and implementing automation for testing and other tasks, according to McKinsey.

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From risk management to strategic resilience

In a volatile world, resilience is an increasingly critical prerequisite for corporate performance. The COVID-19 pandemic has caused a massive shock to public health, with dire human consequences. The crisis has dramatically demonstrated the sensitivity of economies to demand shocks as well as industry vulnerabilities to supply chain disruptions. Furthermore, the pandemic spread in an environment defined by accelerating climate change and the increasingly urgent demand to reduce greenhouse-gas emissions.

On top of public-health and environmental pressures, organizations are subject to many business challenges, societal uncertainties, and geopolitical tensions. The disruptive currents include accelerating digitization, cyberthreats, and inflation and price volatility. The dynamic pace of change makes disruptions hard to predict, even as they grow in severity and frequency. Companies in all industries thus need to plan for the unexpected and build up their response capabilities in advance.

The pandemic crisis also revealed the true value of resilience management to business leaders. They recognized that their crisis contingency plans were instrumental to managing through the crisis. Though the magnitude of the pandemic and its domino effects were not generally foreseen, the processes and procedures companies had in place proved themselves (or not) in very trying conditions.

Key findings from the FERMA–McKinsey survey

McKinsey recently supported the Federation of European Risk Management Associations (FERMA) on a comprehensive survey about the pandemic’s impact on corporate resilience. The survey drew responses from more than 200 senior executives and risk and insurance professionals, reflecting a wide range of industry sectors and countries. The survey probed for views on the relevance for organizations, the capabilities for managing strategic resilience, and the importance of resilience in and across corporate functions, including strategy, operations, and risk.

The executives revealed that in the past, their risk management focus was on a small number of well-defined risks, primarily financial risks. They told us that now, risk is encompassing the broader mandate of resiliency management. It is woven into long-term strategy development at top organizations, helping companies navigate a far more dynamic operating environment.

Almost 60 percent of respondents feel their organizations have excellent or very good resilience capabilities, meaning they are well equipped to build and manage resilience overall. In part, that is a direct response to the pandemic, which broadened leaders’ view of the risk function beyond one or two specific risks. More than half of respondents acknowledge that the global pandemic has made risk and resilience significantly more important to their organizations.

Among specific areas of resilience, companies are clearly focusing on workplace safety and remote working in managing through the pandemic. More than 75 percent say implementation measures in these two areas are largely completed. Fifty-two percent of respondents said that for their organizations, the most effective capabilities are in place to manage financial resilience.

At the same time, executives reported room for improvement. Management of business operations and the supply chain emerged as weak points during the pandemic. Many companies have yet to fully implement new remedial measures. Senior executives state that risk is still mainly involved in crisis response.

“We are learning from the crisis, reviewing, for example, our evaluation process for suppliers,” said the chief risk officer at a company in Italy. “In the past, we focused mainly on financial impact but have since adopted a holistic view, looking at the geographic footprint and compliance issues, among other factors.” Survey results included these findings:

• Nearly two-thirds of responding companies said that resilience is central to their organizations’ strategic process—either as a top priority or to an important extent. Risk and insurance managers are strongly involved in resilience areas, including operational resilience and digital and technology resilience. In addition to those two areas, finance and operations were more often cited by survey respondents as the four most important resilience areas.
• Foresight capabilities (scenarios and stress testing) emerged as one of the core areas for improvement. Companies were split in their use of scenarios and stress-testing exercises. Roughly half of executives rarely or never use them in strategic decision making, and half use them often or in every risk and resilience exercise.
• The pandemic continues to highlight the need for secure and flexible technical infrastructure and the strong intersection of digitization within other resilience areas, including implementing work-from-home processes.
• Risk functions and executive teams play leading roles in building a resilient organization, much more so than strategy teams. However, risk managers are not yet at the center of resolving crises at all times. A better risk governance model is key for efficient and effective decision making and crisis management.

To strengthen resilience in the future, most risk managers (75 percent) believe that the most important actions will be to improve risk culture and strengthen the integration of resilience in the strategy process. Important additional areas are improved risk data aggregation and reporting and more advanced foresight capabilities. Executives also want to revisit risk governance and radiate a better understanding of the critical role the risk function plays.

The challenge now is to move out of a reactive, crisis response mode and integrate risk with other core functions on a more permanent basis. Likewise, as they guide their organizations in the transition from crisis and risk management to resilience, top managers can can emphasize risk governance and risk data aggregation to develop better reporting and foresight capabilities. Risk has a key role to play and should partner with strategy and the executive team to guide organizations in the transition from risk and crisis management to resilience.

From crisis response to a holistic resilience strategy

Like many crises, the pandemic revealed hidden vulnerabilities in organizations and weaknesses in their response capabilities. Executives had to respond quickly to a variety of arising challenges in operations, including workforce discontinuities and supply chain issues involving critical shortages and logistics barriers. Decision makers learned to value timely and insightful data as they defined priorities and actions under stressed conditions. The FERMA–McKinsey survey revealed some good examples of resilient responses to the immediate pandemic-driven challenges:

• Operational and supply chain challenges. Many companies enabled digital solutions, including advanced analytics, to supply chain issues from the beginning of the crisis. A leading global consumer firm improved the reliability of its supply chain by moving toward predictive maintenance of its machinery; another global company applied next-generation AI technology to monitor and identify unusual ordering patterns and respond accordingly; an energy company applied a smart supply chain digitization plan to provide business continuity. As the crisis evolved, cargo demand surged and ports became congested. Some companies took bold measures in response: a beverage giant shifted some operations from their container shipping to bulk carriers; big-box retailers began leasing their own containers and chartering ships.
• Technological challenges. During the pandemic, cyberattackers have been taking advantage of security vulnerabilities created in the shift to work-from-home operations. In response, many organizations have strengthened defenses, closing potential gaps before hackers can compromise networks. Some companies have made significant investments in their capabilities, sometimes hiring experts; tech giants and other global firms have also acquired smaller cybersecurity companies.
• Organizational challenges. At the beginning of the crisis, remote-working arrangements needed to be scaled and implemented for office work, while on-site workers needed appropriate safety measures, including testing and protective equipment. The record for on-site work has been spotty, especially at the beginning of the pandemic, and many lessons should be incorporated into future plans. The switch from office to home, however, was handled with ready competence by many large companies. The remote workforce required a new cyberstrategy, extending the security shield into the remote endpoints in people’s homes. Leaders then explored avenues to prevent the fragmentation of organizational culture, maintain high performance, and support the health and well-being of the remote workforce.

Beyond these often well-executed responsive actions, however, few firms have adopted a comprehensive strategic perspective to meet the challenges of the next disruption over the horizon. Yet this is what organizations need to do if they are to pivot during crises and accelerate into the new crisis-defined environment. The needed orientation is proactive, based on a business perspective, and goes beyond a reactive, second-line-of-defense approach to uncertainty. To build resilience into their long-term strategic decision making, organizations need to develop certain cross-functional capabilities and strengthen resilience in a number of strategic areas.

Overarching capabilities and core resilience areas

The overarching capabilities include foresight skills and disruption and crisis response preparedness . To develop foresight capabilities, organizations gather and study the relevant data, develop pertinent scenarios to discover gaps in resilience, and use this method to anticipate and prepare for future crises. Appropriate crisis response capabilities can then be pursued: those that can be developed and implemented in advance, to be applied quickly and effectively in case of disruptions. These capabilities—such as strengthened financials, better security (whether for IT and software or physical assets), market flexibility, and optionality—can by design create a competitive advantage that drives superior performance through the next industry cycle.

The core resilience areas can be grouped as follows:

• Financial resilience . Institutions must balance short- and longer-term financial aims. A solid capital position and sufficient liquidity enable organizations to weather rapid drops in revenue, increased cost, or credit issues. Resilient companies are able to achieve superior margins by increasing revenue more than controlling costs. But McKinsey research also suggests  that tomorrow’s resilient firms are more likely to be those driving value-added growth while balancing optionality (retained earnings growth)—rather than those that focus most of their attention on maintaining operating margins at the expense of other proportionate measures.
• Operational resilience. Resilient organizations maintain robust production capacity that can pivot to meet changes in demand or remain stable in the face of operational disruption, all without sacrificing quality. They also fortify both their supply chains and delivery mechanisms to maintain operational capacity and the provision of goods and services to customers, even under stress of all forms ranging from failures of individual suppliers or distributors to natural catastrophes and geopolitical events.
• Technological resilience. Resilient firms invest in strong, secure, and flexible infrastructure to manage cyberthreats  and avoid technology breakdowns. They maintain and make use of high-quality data in ways that respect privacy and avoid biases, compliant with all regulatory requirements. At the same time, they implement IT projects both large and small—at high quality, on time, in budget, and without breakdowns—to keep pace with customer needs, competitive demands, and regulatory requirements. If something does go wrong, they maintain robust business continuity and disaster recovery capability, avoiding service disruptions for customers and internal operations.
• Organizational resilience . Resilient firms are able to attract and develop talent in areas critical to their future growth; where many others fail, they find a way to secure sought-after people—with scarce analytics or cybersecurity skills, for example. Such organizations foster a diverse workforce where everyone feels included and can perform at their best. They deliberately recruit the best talent, develop that talent equitably, and upskill or reskill flexibly and fast. They implement strong people processes that are free of bias and maintain robust succession plans throughout the organization. Culture and desired behavior are mutually reinforcing, supported by thoughtful rules and standards that promote fast and agile decision making.
• Reputational resilience. Resilient institutions align values with actions and words. A wide range of stakeholders—employees, customers, regulators, investors, and society at large—are holding firms accountable for their actions, brand promise, and stance on environmental, social, and governance (ESG) issues. Resilience demands a strong mission, values, and purpose that guide actions. It also requires flexibility and openness in listening to and communicating with stakeholders, anticipating and addressing societal expectations, and genuinely responding to criticism of firm behavior.
• Business-model resilience. Resilient organizations develop business models that can adapt to significant shifts in customer demand, the competitive landscape, technological changes, and the regulatory terrain. This involves maintaining an innovation portfolio and valuing entrepreneurship. Particularly during times of crises, resilient organizations are able to adapt business models to the dynamic and uncertain environment.

Resilient organizations develop business models that can adapt to significant shifts in customer demand, the competitive landscape, technological changes, and the regulatory terrain.

Resilience as a competitive advantage

The holistic approach to building resilience  advances the organization from a narrow focus on risk, controls, governance, and reporting to a longer-term strategic view of the total environment. Rather than hunting for blind spots in risk coverage within today’s business model, resilient organizations embrace the holistic view, in which resilience becomes a competitive advantage in times of disruption.

An important aspect of the holistic approach involves using crisis scenarios to test for resilience in a downturn. Accordingly, foresight capabilities are used to develop the scenarios; scenario-based modeling can then pressure-test strategies and business models through future volatile environments—such as those defined by economic downturns, rising geopolitical tensions, disruptions in the regulatory landscape, as well as technological disruptions. Such an approach enables leaders to move beyond resilience capability assessments to active strategic thinking to find new opportunities and shape new business models.

Designing and implementing strategic resilience

Companies have lately developed tools to deal with the challenges of the COVID-19 pandemic, but the “resilience muscle” must still be strengthened. Future disruptions will be different, and institutions need to plan for the primary impact and also for second- and third-order effects. Some of these knock-on effects appear only after a long delay but then suddenly accelerate; others gather momentum incrementally until an emergency tipping point is reached.

For a number of reasons, few institutions have built sufficient strategic resilience. The goal of becoming a resilient company can sometimes run counter to the more immediate objective of value creation. Building redundancy in supply chains builds resilience but it also increases costs, reduces returns on investment, and thus can make resilience a tough sell to business leaders.

Another barrier is organizational forgetfulness. Resilience is not needed every day; big disruptions are not happening all the time. The importance of resilience can be forgotten between big crises. These trigger big investments, but the next crisis will not necessarily be recognizable as a repeat of the last one. Over time, the effort to achieve strategic resilience peters out and new leaders shift priorities.

Resilience as we have been defining it cannot be achieved in a siloed approach. Yet due to inertia and biases, efforts to achieve a holistic resilience agenda can begin to veer off course, back toward familiar patterns. And siloed resilience efforts cannot collectively achieve the integrated solution.

Finally, as yet, we have no universal means of measuring resilience (we are working on it!). Consequently, the efficacy of investments in resilience tends to be based on qualitative judgements. Likewise, people are not trained in resilience, and performance evaluation is not much based on it. Managers are promoted for expertise in pattern recognition and for avoiding mistakes; however, resilience leadership requires creative thinking, first-principles problem solving for navigating through disruptions, and a predisposition to learn from and adjust to crises and downturns. A defensive stance and routinized thinking will prevent the organization from pivoting and accelerating in the next upswing.

Robust steps toward building sustainable resilience

Companies across industries have learned to successfully navigate fundamental disruptions, emerge stronger, and gain competitive advantage in tough times. The following steps briefly sketch a path to overcome pitfalls while systematically building and strengthening strategic resilience. The steps are not, of course, a simple how-to guide. Rather, each element relies upon talent, capabilities, and deep commitment to the integrated effort.

• Measure resilience and start to report it internally. Taking a business-model view, review resilience dimensions regularly and systematically, identifying strengths and weaknesses compared with industry peers. The ability to conduct these reviews is of critical importance to decision making and balancing value creation and resilience building.
• Pick your disruptions. A resilience agenda built around generic disruptions or overly specific scenarios is rarely useful. Instead, choose a particular type of disruption to start with, then probe it deeply for expected initial impact and longer-term secondary and tertiary effects.
• Put less emphasis on extrapolations based on planning and budgeting processes. The approach is too slow and narrow for our disrupted world. Define instead a mechanism for creating scenarios systematically. Define increasingly disruptive scenarios across a widening circle and embed the impact of structural factors.
• Risk functions need to move beyond the formal views of administration, control, and governance, as well as the formal processes for risk assessment. Find a way to replace these structures, integrating their constituent activities into strategy. Like strategy, risk and resilience management requires a strong business and market perspective, a risk mindset, and interdisciplinary thinking. For risk professionals, this is a call to come out of the ivory towers and into the marketplace.
• Identify the organization’s natural strengths and Achilles’ heels. Test strategy and underlying assumptions against different scenarios—for example, by deploying qualitative and quantitative scenario analyses.
• Define a portfolio of resilience investments. This step will entail revising short-term performance and corporate resilience strategies to enable longer-term profitable growth. Consciously invest in the resilience dimensions, with strategic options and big bets, when needed, to strengthen the strategies. Develop action plans for alternative futures.
• Build first-line capabilities in resilience; build personal resilience and resilience within teams. These efforts also better integrate people into the transition.
• Create an early-warning system that truly monitors internal and external risks. The board should be involved, but crowdsourcing can be used judiciously, for a more secure view on the risks the organization is facing.

History teaches us that the conditions of future growth are often created as organizations respond to the vulnerabilities crises expose. In times of disruption, survival and the wherewithal to achieve future prosperity depend on strategic resilience, which, as the participants in the FERMA–McKinsey survey stress, importantly means adaptability and decisiveness.

Alfonso Natale is a partner in McKinsey’s Milan office; Thomas Poppensieker is a senior partner in the Munich office, where Michael Thun is a senior expert.

This article was edited by Richard Bucci, a senior editor in the New York office.

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Case Study: Companies Excelling in Risk Management

In this article

In the modern business landscape, navigating uncertainties and pitfalls is essential for sustainable growth and longevity. Effective risk management emerges as a shield against potential threats – and it also unlocks opportunities for innovation and advancement. In this article, we will explore risk management and its significance and criteria for excellence. We will also examine case studies of two companies that have excelled in this domain. Through these insights, we aim to glean valuable lessons and best practices. As such, businesses across diverse industries can fortify their risk management frameworks.

The Significance of Risk Management

Risk management is vital for the sustenance and prosperity of companies, regardless of their size or industry. At its core, it is the identification, assessment and mitigation of potential risks that may impede organisational objectives or lead to adverse outcomes. Having a robust risk management approach means businesses can safeguard their assets, reputation and bottom line. 

The statistics are somewhat alarming. According to research , 69% of executives are not confident with their current risk management policies and practices. What’s more, only 36% of organisations have a formal enterprise risk management (ERM) programme. 

Proactive risk management isn’t just a defensive measure; rather, it is necessary for sustainability and growth. With 62% of organisations experiencing a critical risk event in the last three years, it is important to be proactive. By identifying and addressing potential risks, organisations can become more resilient to external shocks and internal disruptions. This means they’re better able to survive through difficult times and maintain operational continuity. Moreover, a proactive stance enables companies to seize strategic advantages. It allows them to innovate, expand into new markets and capitalise on emerging trends with confidence.

Criteria for Excellence in Risk Management

Achieving excellence in risk management means adhering to several key criteria:  

• Ability to Identify Risks: Exceptional risk management begins with identifying potential risks comprehensively. This involves a thorough understanding of both internal and external factors that could impact the organisation. It includes market volatility, regulatory changes, cybersecurity threats and operational vulnerabilities.
• Assessment of Risks: Once identified, risks must be assessed to gauge their potential impact and likelihood of occurrence. This involves using risk assessment methodologies like quantitative analysis, scenario planning and risk heat mapping, to prioritise risks based on their severity and urgency.
• Mitigation Strategies and Control Measures: Effective risk management relies on proactive mitigation strategies to minimise the likelihood of risk occurrence and mitigate its potential impact. This may involve implementing control measures, diversifying risk exposure, investing in risk transfer mechanisms such as insurance and enhancing resilience through business continuity planning.
• Adaptability to Change: Organisations need to be ready to adapt to emerging risks and changing circumstances. This requires a culture of continuous learning and improvement. This means lessons are learned from past experiences to enhance risk management practices and anticipate future challenges.
• Leadership Commitment: Effective leaders demonstrate a clear understanding of the importance of risk management. They know how to allocate adequate resources, support and incentives to prioritise risk management initiatives.
• Strong Risk Culture: A strong risk culture permeates every level of the organisation. This involves a mindset where risk management is viewed as everyone’s responsibility.
• Robust Risk Management Frameworks: Finally, excellence in risk management requires robust frameworks and processes to guide risk identification, assessment and mitigation efforts. This includes defining clear roles and responsibilities, implementing effective governance structures and leveraging technology and data analytics to enhance risk visibility and decision-making.

Company A: Case Study in Risk Management Excellence

Now, let’s take a look at a case study that highlights risk management excellence in practice.

ApexTech Solutions is a company known for its exemplary risk management practices. Founded in 2005 by visionary entrepreneur Sarah Lawson, ApexTech began as a small start-up in the tech industry. It specialises in software development and IT consulting services. 

Over the years, under Lawson’s leadership, the company expanded its offerings and diversified into various sectors, including cybersecurity solutions, cloud computing and artificial intelligence. Today, ApexTech is a prominent player in the global technology market, serving clients ranging from small businesses to Fortune 500 companies.

Risk management strategies and successes

ApexTech’s journey to risk management excellence can be attributed to several key strategies and initiatives:

• Comprehensive Risk Assessment: ApexTech conducts regular and thorough risk assessments to identify potential threats and vulnerabilities across its operations.
• Investment in Technology and Innovation: ApexTech prioritises investments in cutting-edge technologies such as AI-driven analytics, predictive modelling and threat intelligence solutions.
• Customer-Centric Approach: ApexTech tailors its risk management solutions to meet specific needs and preferences. This fosters trust and long-term partnerships.
• Cybersecurity Measures: ApexTech has made cybersecurity a top priority. The company employs a multi-layered approach to cybersecurity to mitigate the risk of cyberattacks.
• Continual Improvement and Adaptation: ApexTech fosters a culture of continual improvement and adaptation. The company encourages feedback and collaboration among employees at all levels so they can identify areas for improvement and implement solutions to mitigate risks effectively.

By proactively identifying and addressing operational risks, such as supply chain disruptions and regulatory compliance challenges, ApexTech has maintained operational continuity and minimised potential disruptions to its business operations.

ApexTech Solutions serves as a compelling example of a company that has excelled in risk management excellence by embracing proactive strategies, leveraging advanced technologies and fostering a culture of innovation and adaptation. 

Company B: Case Study in Risk Management Excellence

TerraSafe Pharmaceuticals is a renowned company in the pharmaceutical industry, dedicated to developing and manufacturing innovative medications to improve global health outcomes. Established in 1998 by Dr Elena Chen, TerraSafe initially focused on the production of generic drugs to address critical healthcare needs. 

Over the years, the company has expanded its portfolio to include novel biopharmaceuticals and speciality medications.

TerraSafe Pharmaceuticals has a holistic approach to identifying, assessing and mitigating risks across its operations:

• Rigorous Quality Assurance Standards: TerraSafe prioritises stringent quality assurance measures throughout the drug development and manufacturing process. This ensures product safety, efficacy and compliance with regulatory requirements.
• Investment in Research and Development (R&D): TerraSafe allocates significant resources to research and development initiatives. These are aimed at advancing scientific knowledge and discovering breakthrough therapies. With its culture of innovation and collaboration, the company mitigates the risk of product obsolescence.
• Regulatory Compliance and Risk Monitoring: TerraSafe maintains a dedicated regulatory affairs department. This team stays abreast of evolving regulatory requirements and industry standards. They monitor regulatory changes proactively and engage with regulatory authorities to ensure timely compliance with applicable laws and standards. This reduces the risk of non-compliance penalties and legal disputes.
• Supply Chain Resilience: TerraSafe works closely with its suppliers and logistics partners to assess and mitigate supply chain risks like raw material shortages, transportation disruptions and geopolitical instability. It implements contingency planning and diversification of sourcing strategies.
• Focus on Patient Safety and Ethical Practices: The company adheres to stringent ethical guidelines and clinical trial protocols to protect patient welfare and maintain public trust in its products and services.

By investing in R&D and adhering to rigorous quality assurance standards, TerraSafe has successfully developed and commercialised several breakthrough medications that address unmet medical needs and improve patient outcomes. What’s more, the company’s proactive approach to regulatory compliance has facilitated the timely approval and market authorisation of its products in key global markets. This has enabled the company to expand its geographic footprint and reach new patient populations.

Key Takeaways and Best Practices

Despite being in different industries, both companies share similarities. Both ApexTech and TerraSafe Pharmaceuticals know the importance of proactive risk management. They have procedures in place that work to identify, assess and mitigate risks before they escalate. What’s more, both companies are led by visionary leaders who set the tone for decision-making. They prioritise building a strong risk culture with all employees knowing their role in risk management.

Best practices and strategies employed

• Conducting Regular Risk Assessments: Both companies conduct regular and comprehensive risk assessments to identify potential threats and vulnerabilities across their operations.
• Investing in Training and Education: Both invest in training and education programmes so that employees are equipped with the knowledge and skills necessary to identify and manage risks effectively. Employees at all levels contribute to risk management efforts.
• Collaboration and Communication: Both companies know the importance of collaboration and communication in risk management. They create channels for open dialogue and information sharing. Stakeholders collaborate on risk identification, assessment and mitigation efforts.
• Continual Improvement: Both companies have a culture of continual improvement. They encourage feedback and innovation to adapt to changing circumstances and emerging risks.
• Tailored Risk Management Approaches: Both companies develop customised risk management frameworks and strategies that align with their objectives and priorities.

Emerging Trends in Risk Management

One of the most prominent trends in risk management is the increasing integration of technology into risk management processes. Advanced technologies such as artificial intelligence (AI), machine learning and automation are revolutionising risk assessment, prediction and mitigation. These technologies mean companies can analyse vast amounts of data in real time. This allows them to identify patterns and trends and predict potential risks more accurately.

Data analytics is another key trend reshaping risk management practices. Companies are leveraging big data analytics tools and techniques to gain deeper insights. By analysing historical data and real-time information, they can identify emerging risks, detect anomalies and make more informed risk management decisions.

Cybersecurity risks have become a major concern. Threats such as data breaches, ransomware attacks and phishing scams pose significant risks to companies’ data, operation and reputation. Companies are investing heavily in cybersecurity measures and adopting proactive approaches to protect their digital assets and mitigate cyber risks.

Companies are integrating global risk management into their overall risk management strategy too. They are monitoring global developments, assessing the impact of global risks on their business operations and developing contingency plans.

The Role of Leadership

Leadership plays a pivotal role in shaping organisational culture and driving initiatives that promote risk management excellence. Effective leaders recognise the importance of risk management but also actively champion its integration into the fabric of the organisation. Effective leaders:

• Set the Tone: Leaders set the tone by articulating a clear vision and commitment to risk management from the top down.
• Lead by Example: Leaders demonstrate their own commitment to risk management through their actions and decisions.
• Empower Employees: Leaders empower employees at all levels to actively participate in risk management efforts. They encourage employees to voice their concerns and contribute.
• Provide Resources and Support: Effective leaders invest in training and development programmes to enhance employees’ risk management skills and knowledge.
• Encourage Innovation: Leaders encourage employees to think creatively and experiment with new approaches to risk management.
• Promote Continuous Improvement: Leaders create opportunities for reflection and evaluation to identify areas for improvement and drive learning.

Encouraging a Risk-Aware Culture

For organisations to identify, assess and mitigate risks at all levels effectively, they need to encourage a risk-aware culture. Here are some tips for encouraging a risk-aware culture:

Communication and transparency:

• Encourage open communication channels where employees feel comfortable discussing risks and raising concerns.
• Provide regular updates on the organisation’s risk landscape, including emerging risks and mitigation strategies.
• Foster transparency in decision-making processes, particularly regarding risk-related decisions.

Education and training:

• Provide comprehensive training programmes on risk management principles, processes and tools for employees at all levels.
• Offer specialised training sessions on specific risk areas relevant to employees’ roles and responsibilities.
• Incorporate real-life case studies and examples to illustrate the importance of risk awareness and effective risk management.

Empowerment and ownership:

• Empower employees to take ownership of risk management within their respective areas of expertise.
• Encourage employees to identify and assess risks in their day-to-day activities and propose mitigation strategies.
• Recognise and reward employees who demonstrate proactive risk awareness and contribute to effective risk management practices.

Integration into performance management:

• Include risk management objectives and key performance indicators (KPIs) in employee performance evaluations.
• Link performance bonuses or incentives to successful risk management outcomes and adherence to risk management protocols.
• Provide feedback and coaching to employees on their risk management performance, highlighting areas for improvement and best practices.

Challenges in Risk Management

Challenges in risk management are inevitable, even for companies excelling in this domain. Despite their proactive efforts, all organisations encounter obstacles that can impede their risk management practices. Here are some common challenges and strategies for addressing them:

Complexity and interconnectedness:

• Challenge: The modern business environment is increasingly complex and interconnected, making it challenging for organisations to anticipate and mitigate all potential risks comprehensively.
• Strategy: Implement a holistic risk management approach that considers both internal and external factors impacting the organisation. Create cross-functional collaboration and information sharing to gain a comprehensive understanding of risks across departments and business units.

Rapidly evolving risks:

• Challenge: Risks are constantly evolving due to technological advancements, regulatory changes and global events such as pandemics or geopolitical shifts. Organisations may struggle to keep pace with emerging risks and adapt their risk management strategies accordingly.
• Strategy: Stay informed about emerging trends and developments that may impact the organisation’s risk landscape. Maintain flexibility and agility in risk management processes to respond promptly to new challenges.

Resource constraints:

• Challenge: Limited resources, including budgetary constraints and staffing limitations, can hinder organisations’ ability to invest adequately in risk management initiatives and tools.
• Strategy: Prioritise risk management activities based on their potential impact on organisational objectives and allocate resources accordingly. Leverage technology and automation to streamline risk management processes and maximise efficiency.

Compliance and regulatory burden:

• Challenge: Meeting regulatory requirements and compliance standards can be burdensome and complex.
• Strategy: Stay abreast of regulatory developments and ensure compliance with applicable laws and regulations. Implement robust governance frameworks and internal controls to demonstrate regulatory compliance and mitigate legal and reputational risks. Invest in compliance training and education for employees.

Human factors and behavioural biases:

• Challenge: Human factors such as cognitive biases, organisational politics and resistance to change can undermine effective risk management practices, leading to decision-making errors and oversight of critical risks.
• Strategy: Raise awareness about common cognitive biases and behavioural tendencies that may influence risk perception and decision-making. Create a culture of psychological safety where employees feel comfortable challenging assumptions and raising concerns about potential risks.

Conclusion: Striving for Excellence

In this article, we have explored the importance of effective risk management for businesses. We have delved into the criteria for excellence in risk management, showcasing companies such as ApexTech Solutions and TerraSafe Pharmaceuticals that exemplify these principles through their proactive strategies and robust frameworks.

From embracing technology and fostering a culture of innovation to prioritising regulatory compliance and empowering employees, these companies have demonstrated remarkable achievements in navigating complex risk landscapes and achieving sustainable success.

However, it’s essential to recognise that even companies excelling in risk management face challenges. By acknowledging these and implementing strategies to address them, organisations can enhance their resilience and effectiveness in managing risks over the long term.

Assessing Risk

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About the author

Louise Woffindin

Louise is a writer and translator from Sheffield. Before turning to writing, she worked as a secondary school language teacher. Outside of work, she is a keen runner and also enjoys reading and walking her dog Chaos.

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13 case studies on how risk managers are assessing their risk culture

Continuing on from last week's post, There’s no such thing as risk culture, or is there? , this is the third in a series of blogs in which we are summarising key insights gained from about 50 risk managers and CROs interviewed between December 2019 and May 2020.

There are various techniques and different mindsets on how to assess and measure risk culture. We round-up the very best case studies, tools and templates used by risk managers around the world.

To survey or not to survey?

If you start from a base of assuming you need a survey (or perhaps you have an executive or board who want one), then you are faced with two main choices:

• Include a number of questions in a larger employee engagement/culture survey, probably being run by HR (as one of our Member organisations did, only to discover the results didn’t align with their anecdotal feedback and experiences)
• Conduct a dedicated risk culture survey, which might later be re-run as a benchmark (as one former CRO at an international airline did upon joining the organisation).

However, not everyone believes a survey is the way to go. Or at least, not a survey in isolation.

It’s a self-assessment tool, for one thing, as former Bank of Queensland CRO Peter Deans pointed out in a recent Intelligence contribution (Members: access this here ). You may not get the true risk picture you need, if you are only asking people if they believe they are making risk-aware decisions and are satisfied with the culture.

UK risk consultant Roger Noon shared with us a variety of tools risk managers can use in-house to help understand behaviours and diagnose culture (Members: access these tools here) . Of quantitative risk culture surveys, he says: “Survey instruments can also be used so long as you and your sponsors recognise that they are typically very blunt tools, often with poor validity. They're very ‘point in time and context’ driven, and they don't really provide you with objective observable output. 

“However, they can be used to generate interesting data that creates helpful dialogue at the senior management table. They’re also useful to build engagement with the people that are part of the culture, and as part of a wider, triangulated set of data.”

In other instances, risk managers found it was not employees they initially needed to survey, but their board. Across different industries, different understandings of risk culture exist. If your board is asking about risk culture, it can be a good idea to check in that you (and they, among themselves) are all on the same page before beginning any broader projects. (Members: take a look at some sample questions about risk culture for the board here .)

So overt it’s covert

When it comes to an organisation’s overall approach to assessing and changing risk culture, there are also a few fundamentally different mindsets.

For some companies, the ‘culture overhaul’ needs to be a large project with lots of publicity and a big push from the top. In such cases, when it comes to driving change, extensive engagement and communications programs are planned, potentially including video.

We collected one case study, however, that stood out for its far more subtle and positive approach. In it, the head of risk at a large organisation with a few thousand staff spread across nine departments said there were a lot of preconceptions and quite a bit of nervousness around the idea of ‘working on risk culture’. This risk manager had therefore developed a different kind of self-assessment tool, which helped participants map their own risk culture using evidence-based attributes. 

At the end of the initial meeting (which took no more than an hour and a half), participants had identified their own areas for improvement and incorporated culture elements into their future risk planning. (Members: access this case study here .)

Sometimes risk managers reach a point where they simply have to be realistic about their resources and prospects for implementing large scale change.

In another example from the Middle East, an expat risk manager found it was a case of trying to move his company’s risk culture at different ‘clock speeds’ across the organisation’s verticals, catering to different levels of appetite, awareness and need for change between delivery teams and the C-Suite. (Members: access this case study here .)

And, finally, sometimes risk managers reach a point where they simply have to be realistic about their resources and prospects for implementing large scale change. If there’s no appetite from the top for a risk culture shift, the risk manager will have an uphill battle. We’ve collected ideas from the former risk leader at a government utility, who devised tactics for embedding changes into existing systems and processes to deliver better risk outcomes for the business. (Members: access these ideas here .)

Measuring, reporting and dashboards

We found that the facet of culture where everybody most wanted to know what everybody else was measuring and what they were doing in terms of reporting and dashboards.

Again, there were a number of different methods shared by our Members and contributors, as well as contrasting views on what actually should be measured.

For example, is it redundant to actually measure ‘risk culture’? After all, isn’t the entire point of improving risk culture to improve risk outcomes? Why not just focus on measuring the risk outcomes, with culture change happening in the background to facilitate? 

Certainly, this was the view of the former risk manager at a prominent United States government organisation, who spoke to us about building up their organisation’s risk capability over several years. (Members: read more on this here .)

Is it redundant to actually measure ‘risk culture’? After all, isn’t the entire point of improving risk culture to improve risk outcomes?

However, others saw value in tracking specific culture metrics, even if these goals were a means to an end. A scorecard or dashboard became a talking point to launch difficult conversations with different managers or executives, and the ability to show progress over time helped maintain momentum and commitment.

Over time, Peter Deans at BOQ developed and refined a ‘basket of risk culture measures’ along the same lines as the consumer price index, which he regularly updated and used to give leadership a ‘big picture view’ of how risk culture was doing.

Other contributing risk managers shared their scorecards and dashboards with us as templates, such as a scorecard example using a traffic light system across nine key risk indicators. We also collected ideas for dashboard metrics and a spreadsheet-based sunburst tool, alongside risk culture pillars.

On a final note, UK risk advisor Danny Wong shared a detailed case study on how to use data to drive an impactful risk narrative. For any risk managers who are striving to bring risk into line with many other functions in contemporary business – such as product development, sales, operations, and others that regularly use data strategically to inform decision making and best practice – this piece is essential reading. (Members: access this piece here .)

Risk Leadership Network’s Intelligence platform – our searchable database of peer-contributed case-studies, tools and templates – delves deeper into risk culture with more on diagnosing culture , addressing culture and ethics , and building a risk culture survey of boards . (Members only)

Are you an in-house risk manager who could benefit from collaborating with a global network of senior risk professionals talk to us about becoming a member today ., related posts you may be interested in.

5 ways to become a better leader in risk culture

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Case Study: Managing Risk to Scale Impact

Can expecting the best, but planning for the worst, prepare nonprofits and their funders to turn unexpected bumps into opportunities?

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By Eric Stowe Summer 2017

We like to think of nonprofit organizations as the brave wayfarers of broad social change, scoffing at risk and thirsting for the opportunity to “go big” as they relentlessly pursue their missions. But with more than 10 million NGOs operating globally—and still a seemingly endless list of problems to tackle—it strikes me as fair to question the validity of that view.

Navigating Risk in Impact-Focused Philanthropy

This special supplement examines the concept of risk in philanthropy, providing insights, examples, and practical steps to help philanthropists better account for and manage risk as an integral part of the grantmaking process.

A Note on the Risks of Risk

Embracing philanthropy’s risky business | 2, case study: managing risk to scale impact | 1, change is worth the risk | 1, risk, trust, and impact: connecting the dots, q&a with james p. joseph & tomer inbar, using scenario planning to surface invisible risks.

In fact, from my vantage point, it seems that most nonprofits have little appetite for risk. 1 Small, one-off initiatives, isolated pilot projects, village-level programming, or limited-scope endeavors are the norm, not the exception. While that approach, often seen through proofs of concept, shouldn’t discount their efficacy, impact, or worth, these programs rarely ever go to scale.

A big piece of the issue, of course, is the availability of big-bet funding. The expressed desire for transformative change from the donor community has never been greater than it is right now. And increasing numbers of grantors say that they would like to see third sector organizations take big risks. But funding opportunities are far from commensurate with that ambition. In fact, investments are actually quite sparse relative to the level of attention and zeal the funding community has placed on systems change and big bets over the last few years. 2 In any case, taking on major social initiatives without clear pathways to success, as it turns out, seems to be a difficult thing to do with other people’s money.

What could change this picture? Besides a complete overhaul of how NGOs and donors engage with one other when thinking of and planning for broad social change, here’s what I think could be a good first step: more frank discussion about risk—the nature of it, how to anticipate and prepare for potential crises, and what to do in the event of one. It has become common to hear axioms about organizations taking big risks when working toward big change, but it’s rare to hear what doing so actually looks like on the ground. By acknowledging and having a plan to deal with risk, grantors and NGOs alike can feel more comfortable in making calculated big bets.

That’s why I have written this essay—to share my experience with risk as founder and CEO of Splash , a nonprofit committed to ensuring safe water for children and families worldwide. In a nutshell, I’ve learned that the bigger the goal, the greater the potential for a fairly unremarkable event to become a fairly monumental challenge or crisis. So when I hear funders talk about organizations taking bigger risks, my question is this: Is the organization built to withstand a crisis, and is the funder ready to support the organization in the event of one? Because whether or not its leaders and staff members have triplechecked every line item and every moving part of their program, if they are working toward real scale, then real crisis is inevitable.

What follows are descriptions of three specific times when we at Splash had to assess our goals and strategies in response to unforeseen and sometimes calamitous events— events that radically altered our organizational vision and posed existential threats to our programs if not handled strategically. In all three cases, our donors played a critical role in helping us to effectively deal with potential crises and chart a path forward.

China: Our (Almost) “Mission Accomplished” Moment

Splash’s first major project launched in China in 2007. Due to a strong preexisting working relationship with the government there, we were able to initiate an expansive project focused on providing safe water to every orphanage in the country—there were 700 on our list—in relatively short order. With China’s geographic size and cultural complexity across its many regions and provinces, it was a mighty task—especially when you consider that at the time, Splash was an agency of two people. But we poured everything into the project’s success, and we saw fast returns.

You can imagine my unbridled joy when we were close to completing the project in 2012. With only 20 orphanages left on our checklist until 100 percent coverage, you can also probably imagine my unfiltered shock when the government informed us that there were actually more than 500 orphanages still left on the national roster, facilities that hadn’t been included on our original list.

Keep in mind: We had already done the bulk of fundraising for the initial target and therefore had reallocated our fundraising attention and resources to other programs; we had widely discussed the projected completion date publicly, which allowed us to initiate new donor conversations for new initiatives based on the success of this soon-to-be completed accomplishment; and we had begun planning a celebration with key donors of the program, which had been scheduled to be completed on time. To hear that we were barely beyond the halfway mark was absolutely crushing, to say the least.

In the government’s defense, the facilities that the officials had left off the list were the most sensitive and remote orphanages in the country, and until they were sure that we weren’t there to politicize or proselytize under cover of our license, they hadn’t been willing to share them. In our defense, we honestly didn’t know about these facilities, as they were truly the most protected and remote of the country’s orphanages—off the grid completely from common view. In the end, we were provided an unprecedented level of access into the government’s child-serving programs because we had proven ourselves across the country over the previous five years.

While I take pride in the level of trust we earned, the news caused an immediate and monumental crisis within our organization. We were committed to serving all of China’s orphanages. But the immense funding deficit we faced; the barrage of questions from staff, board members, and donors about our seemingly anemic project planning (even though we were transparent about what had happened); and the acute concern that our reputation was at stake, all collided to raise serious doubts (ours, our donors’, our other clients’) about our abilities to reach this new milestone goal.

Once we decided to stay true to our goal of reaching 100 percent, we ended up approaching our largest funder and pitched them to ease previous funding restrictions on other grants to Splash. In so doing, we were able to ease the strain on the organization while also allowing for flexibility in moving capital toward areas of greatest need rather than toward rigid business plans built in a vacuum.

It is only now, five years later, that we are mere months from completion. It wasn’t easy to course-correct our work in-country, or to revise Splash’s programming outside of China to help ease the financial and operational burdens placed on our organization with the addition of the 500 orphanages (for a new total of 1,200). In fact, it took at least three years to relearn our rhythm and regain our pace in China, to divert resources toward rebuilding our fundraising efforts, to reassign people throughout our organization to newly revised work plans, and to restructure our global plans to ensure that we could meet the needs of all the countries we had committed to helping.

Without the flexibility of our primary donors, we would have had to choose between collapsing the China program and significantly downsizing other country programs to stave off organizational entropy. I honestly shake my head when thinking about how much we had to reshuffle to keep this program in China on track.

India: Too Much of a Good Thing

Our work in India is similar in audacity to what we set out to accomplish in China. Here, we’re determined to ensure clean water, clean hands, and clean toilets for 400,000 of the poorest kids across 2,000 government schools in Kolkata, the nation’s third-largest city.

Most people have a hard time imagining what a water crisis looks like in an urban setting. This is even true of government officials who live and work in the same cities in which we operate. We have routinely found that officials working in the Education, Health, and Water ministries in India are unaware of how unhealthy and unsafe the water, sanitation, and hygiene (WASH) conditions are in poor urban schools. To change that scenario, we shifted our funding strategy in 2015 to invest significant resources in collecting deep data around this subject—knowing that providing evidence of the critical WASH situation in urban India was critical to mobilize everyone concerned about schoolchildren and their education.

We took extensive measures to ensure that our data collection process and findings were unassailable. 3 We spent several months in Kolkata and in two other locations, sending teams to every public school to assess the WASH infrastructure, evaluate the schools’ existing WASH knowledge and programs, and test the drinking water on site. In total, we reached more than 3,000 schools providing education for more than one million children. The data we gathered showed a dramatic gap between what public officials believed the WASH standards to be and what they actually were.

Our findings inspired our teams, compelling us to reframe our own strategies and our programming. So it shouldn’t have come as a surprise that when we presented our data to the representatives of various ministries in India, and other NGOs and international NGOs (INGOs) interested in the same issues, over a four-month span, they were shocked by the results.

Specifically, once the stark conditions at these schools were spotlighted, global INGOs, Indian organizations, and government bodies with a vested interest in education, urban poverty, and WASH began approaching us, proposing potential partnerships that would stretch our work well beyond our original targets in Kolkata—and even beyond our planned focus on improving conditions in schools. Many of the groups that approached us were significantly larger than Splash (by several orders of magnitude).

These were much bigger organizations pitching a much smaller and far more resource-constrained organization to partner on initiatives that would see meaningful revenue increases for us but would also require an appreciable stretch in both our scope and services. We realized that in order to align with these new co-funding opportunities, we would have to expand our model to accommodate the other organizations’ broader scope of work, speed up our growth and outputs exponentially, and carry a much greater fundraising burden.

The power dynamics associated with the negotiations, the internal discussions we had about the decisions we would have to make in order to control mission drift, the speed in which the agreements had to happen (before the opportunities dried up)—all intersected very quickly. And in the end, we simply couldn’t keep up.

Not only did we lose momentum overall, but also we actually lost some credibility in the marketplace because we were talking about operating at scale, but we were not necessarily ready to implement in such a multidisciplinary fashion. What had begun as a groundbreaking chance to spend our resources to prove the need ended up as a protracted situation that tested our ability to maintain our clarity of purpose. All of the opportunities in front of us had great potential but also could have pulled us from our core focus, and they certainly could have diminished our ability to deliver for the core communities we had committed to serve. It was a prime example of how even the most positive developments still present risks.

Ultimately, we decided to refocus on our core commitment to design a scalable WASH-in-Schools model for Kolkata that could be replicated across India’s major cities and beyond. We moved forward with one critical strategic partnership and deepened the support of one of our key donor groups to take advantage of this opportunity. Today, thanks to their support, we have been able to build internal expertise at our Seattle headquarters, in India, and in our two other main program countries, Nepal and Ethiopia, paving the way for broader future success and far greater scalability.

Now, with our core program model strengthened, we will be selectively reengaging with the global INGOs, Indian organizations, and government bodies to reassess opportunities for partnership, with a clearer perspective on mission creep and greater leverage in negotiations.

Nepal: Doing the Right Thing—and Getting Punched Anyway

In Nepal, we’re focused on ensuring safe water for all of the schools in the nation’s capital city of Kathmandu. In keeping with our long-term goal of transferring full control and autonomy to local country offices over time, we decided to invest heavily in the professional development of the local country leader, a smart, charismatic, engaging, and entrepreneurial individual. Between 2013 and 2015, Splash spent significant resources, influenced our networks, and committed funding to build his leadership capabilities.

By early 2016, Splash was closing in on ensuring clean water for 70 percent of all the students in the city. We estimated that it would take an additional two years to get to 100 percent coverage, and we were ramping up for the final leg of implementation, with a larger goal of seeing our model replicate in cities across the country in our sights.

Then we learned that our country director, the same one in whose development we had invested so heavily, had been caught consolidating control over our commercial relationships in Nepal. Shell companies were presented as legitimate vendors, existing policies and procedures were ignored, financial documents were manipulated, and funds from new donors to Splash were being rerouted to this individual’s personal business. He was gaming to reap substantive personal gain from our philanthropic projects.

We pride ourselves on building our model for plagiarism, but not in this way!

These revelations were shared with donors to the program in real time (sharing internal findings within hours of receiving them at the organizational level), which compelled two of Splash’s largest funders to hit “pause” on their funding to us while we tracked all the possible routes of malfeasance. With the assistance of local auditors, lawyers, and business consultants, we were able to determine the extent to which this man had manipulated the policies, opportunities, and relationships that we had built together.

Fortunately, the staff in Nepal alerted us before this individual’s actions caused an irreversible loss. Still, this situation cost us at least a year of momentum and put a pause on more than $1 million in expected funding. Being blindsided in this way was harder for us to overcome than any of the other disruptions we had experienced in Nepal, including those caused by the continuous political upheavals there. Recovering from the fallout of this one person’s actions was even more difficult for our organization than rebounding after the massive earthquake of 2015.

At the time, we were spending more than 35 percent of the organization’s funding on our work in Nepal. The precipitous drop in revenue that followed this unfortunate discovery effectively slammed the brakes on everything we were doing in the short term and forced us to alter our long-term plans as well. It placed enormous strain on our local staff of 30 in Nepal, on our relationships with the government and with schools there, and on our relationships with donors in the United States and Europe. It also taxed our team and our operations in Seattle.

Globally, we are now a much stronger agency because of what happened. The reactions of key donors helped us make the decision to push pause on this program and take the steps necessary to strengthen our management structure in Nepal. The bent toward spotlighting the individual social entrepreneur (the Heropreneur, as we think of it internally) was a dogmatic and ill-conceived philosophy to begin with, but an approach all too common in the social sector. 4 This learning transferred quickly to our other program countries and areas, to the benefit of all our work. While we count ourselves lucky to have caught it when we did, in Nepal we have had to spend a lot of time rebuilding relationships because of what transpired. Trust is built slowly, but it can be destroyed in a flash.

The Butterfly Effect

Strong government partnerships, data-driven programming, and deep investment in local leadership are all essential to the scale and sustainability of any nonprofit venture. We wholly subscribe to them all, even though they ultimately exposed us to significant risk in China, India, and Nepal.

But that’s part of the process, right? Isn’t it what we all signed up for? All nonprofits face a barrage of unforeseen threats (or organization-changing opportunities) on a regular basis. And for those truly pushing the boundaries in the social sector, the risks and opportunities can multiply 10-fold. The greater the goal, the higher the probability that a small action will someday trigger an exponentially larger reaction. In other words, the deeper you go into systems change, the greater the butterfly effect. But all of it—the good, the bad, and the blind side—leads me to three primary conclusions about risk.

First: To be durable, an organization must be built with the expectation that it will have to survive crises. It has to have a responsive and adaptive leadership team that is ready to shift resources, divert and manage funding, and mobilize staff to focus on (potentially) entirely new paths—all while retaining the social fidelity of the organization and navigating to the same North Star. The organizational muscle memory associated with navigating crises well is a net positive for any major future investment. Not every shock or surprise leads to a negative outcome, though. Far from it. And being prepared for a crisis doesn’t necessarily suggest a work atmosphere of constant frenzy; that’s not healthy anywhere. But the team at the helm of the ship has to be agile enough to course-correct quickly in the event that lightning does strike, and do so with efficiency, integrity, and accuracy.

Second: Organizations must be swift, honest, and transparent in conversations with their donors as challenges arise, not after they’ve become too big to handle. Too often, organizations attempt to show that they’ve solved a budding issue, and by the time it has morphed into something more difficult, funding partners are belatedly informed. In each of the three cases I described, we reached out to key funders very early on in the process of assessing the shifting landscapes. Most said that they had never been given that sort of visibility within such a short time frame. This led to totally different discussions between real partners, rather than the usual transactional discussions between donors and grantees. If anything, we now have deeper relationships with each of the funders that were associated with the three cases.

Third: Organizations need to build their capital reserves so that they will be able to weather the unexpected major storm. Open Road Alliance recommends a reserve of at least 20 percent of the overall project costs to mitigate significant risks throughout the life of the project. Judging from our experiences in China, India, and Nepal, that figure seems appropriate. For us, funding allocation and reallocation became the critical linchpins holding programs together in times of tumult and opportunity. Were it not for the cash reserves we had built up, coupled with unrestricted funding, support, and guidance from progressive donors, any of these projects, in isolation, might have slid inexorably off the rails. Progressive philanthropists would also do well to accept that with any transformative project there will be a corresponding likelihood of risk associated with their investments. Thinking about how to set aside a percentage of grant funds to help NGOs deal with crises and opportunities would be both prudent and visionary.

It just goes to show that risk and reward do go hand in hand, and that planning for risk is an approach that donors and nonprofits can rally behind.

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Top 40 Most Popular Case Studies of 2021

Two cases about Hertz claimed top spots in 2021's Top 40 Most Popular Case Studies

Two cases on the uses of debt and equity at Hertz claimed top spots in the CRDT’s (Case Research and Development Team) 2021 top 40 review of cases.

Hertz (A) took the top spot. The case details the financial structure of the rental car company through the end of 2019. Hertz (B), which ranked third in CRDT’s list, describes the company’s struggles during the early part of the COVID pandemic and its eventual need to enter Chapter 11 bankruptcy. 

The success of the Hertz cases was unprecedented for the top 40 list. Usually, cases take a number of years to gain popularity, but the Hertz cases claimed top spots in their first year of release. Hertz (A) also became the first ‘cooked’ case to top the annual review, as all of the other winners had been web-based ‘raw’ cases.

Besides introducing students to the complicated financing required to maintain an enormous fleet of cars, the Hertz cases also expanded the diversity of case protagonists. Kathyrn Marinello was the CEO of Hertz during this period and the CFO, Jamere Jackson is black.

Sandwiched between the two Hertz cases, Coffee 2016, a perennial best seller, finished second. “Glory, Glory, Man United!” a case about an English football team’s IPO made a surprise move to number four.  Cases on search fund boards, the future of malls,  Norway’s Sovereign Wealth fund, Prodigy Finance, the Mayo Clinic, and Cadbury rounded out the top ten.

Other year-end data for 2021 showed:

• Online “raw” case usage remained steady as compared to 2020 with over 35K users from 170 countries and all 50 U.S. states interacting with 196 cases.
• Fifty four percent of raw case users came from outside the U.S..
• The Yale School of Management (SOM) case study directory pages received over 160K page views from 177 countries with approximately a third originating in India followed by the U.S. and the Philippines.
• Twenty-six of the cases in the list are raw cases.
• A third of the cases feature a woman protagonist.
• Orders for Yale SOM case studies increased by almost 50% compared to 2020.
• The top 40 cases were supervised by 19 different Yale SOM faculty members, several supervising multiple cases.

CRDT compiled the Top 40 list by combining data from its case store, Google Analytics, and other measures of interest and adoption.

All of this year’s Top 40 cases are available for purchase from the Yale Management Media store .

And the Top 40 cases studies of 2021 are:

1.   Hertz Global Holdings (A): Uses of Debt and Equity

2.   Coffee 2016

3.   Hertz Global Holdings (B): Uses of Debt and Equity 2020

4.   Glory, Glory Man United!

5.   Search Fund Company Boards: How CEOs Can Build Boards to Help Them Thrive

6.   The Future of Malls: Was Decline Inevitable?

7.   Strategy for Norway's Pension Fund Global

8.   Prodigy Finance

9.   Design at Mayo

10. Cadbury

11. City Hospital Emergency Room

13. Volkswagen

14. Marina Bay Sands

15. Shake Shack IPO

16. Mastercard

17. Netflix

18. Ant Financial

19. AXA: Creating the New CR Metrics

20. IBM Corporate Service Corps

21. Business Leadership in South Africa's 1994 Reforms

22. Alternative Meat Industry

23. Children's Premier

24. Khalil Tawil and Umi (A)

25. Palm Oil 2016

26. Teach For All: Designing a Global Network

27. What's Next? Search Fund Entrepreneurs Reflect on Life After Exit

28. Searching for a Search Fund Structure: A Student Takes a Tour of Various Options

30. Project Sammaan

31. Commonfund ESG

32. Polaroid

33. Connecticut Green Bank 2018: After the Raid

34. FieldFresh Foods

35. The Alibaba Group

36. 360 State Street: Real Options

37. Herman Miller

38. AgBiome

39. Nathan Cummings Foundation

40. Toyota 2010

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Behavioural Risk Management

By René Doff

First published:

ISBN:  9781782724230

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Case Studies on Risk Management Failure

An Introduction to Behavioural Risk Management

Risk Management Context

Value-at-Risk as the Dominant Risk Management Tool in the Financial Industry

The Role of Regulation in Risk Management

Advances in Behavioural Economics and Finance

Behavioural Issues with Probability

Systems Theory

Using Scenarios

Making Robust Decisions

Advances in the Risk Management Process

Behavioural Risk Management in the Financial Markets

Countervailing Power

Behavioural Risk Management: Closing Thoughts

Appendix: Selective list of Behavioural Biases

Bibliography

Having understood the advantages and disadvantages of traditional risk management in the previous chapter, this chapter will analyse five case studies. In each of them, traditional risk management activities fell short because unwanted risks materialised with significant financial effect. The chapter will also provide some generic guidance that will help prepare us for the analysis in the remainder of this book. Despite the knowledge of hindsight, it is worth emphasising that none of the stakeholders involved in these examples would have stated at the time that risk management was unimportant for them. They all practiced some form of risk management to keep abreast of developments, and what really matters is the underlying belief of how risk management would be practised.

CASE STUDY 1: LEHMAN BROTHERS

Amid the global financial crisis, Lehman Brothers filed for bankruptcy on September 15, 2008. It is said to be the largest and most complex bankruptcy in US history. At the time, Lehman Brothers was the fourth largest investment bank in the world and was over 150 years old, being founded as a trading company in 1850. It evolved well and played an important role in the creation

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The Important Role of Enterprise Risk Management Software in Healthcare

Navigating the many dynamic challenges of the healthcare industry requires more than vigilance alone—it demands an innovative risk management strategy. Enterprise risk management software (ERMS) stands at the forefront of this innovation, offering a suite of tools that transform how healthcare organizations identify, analyze, and mitigate risks.

Industry leaders focus on an increasingly holistic approach to ERMS, cutting across the organization to ensure nothing is missed.

A Comprehensive Approach to Risk Management

Successful risk management strategies begin with thorough risk assessments. The right ERMS enables healthcare organizations to identify potential vulnerabilities by evaluating the likelihood and impact of risks on operational and strategic goals.

These assessments are the bedrock of proactive risk management , empowering organizations with the knowledge to prioritize risks effectively.

However, understanding risks is only the first step. Implementing robust policies and ensuring compliance with ever-changing healthcare regulations is equally crucial. Our software streamlines policy management by automating the creation, dissemination, and monitoring of compliance policies. This automation not only ensures adherence to regulations but also frees up valuable resources, allowing staff to focus on core healthcare duties.

Training and Incident Response: Core Elements of Effective Risk Management

Human error can significantly impact healthcare outcomes, making comprehensive training essential. Our ERMS integrates training modules that are continuously updated with the latest procedures and best practices, significantly reducing the risk of costly mistakes. This proactive approach to training ensures that all team members are equipped to handle complex situations effectively.

When incidents occur, the ability to respond swiftly and effectively is critical. Our software enhances this capability with advanced incident reporting tools that facilitate immediate documentation and analysis. This rapid response capability helps mitigate damage and informs future prevention strategies, ensuring continuous improvement in handling adverse events.

Key Considerations and the Role of an ERMS in Managing Risk in Healthcare

Managing risk is integral to maintaining operational excellence and patient safety. An ERMS plays a crucial role, offering tailored tools that address the unique challenges faced by healthcare providers. These tools identify and analyze risks and manage them through strategic assessments and interventions.

Below, we explore several key functionalities of enterprise risk assessment software that are essential in managing healthcare risks effectively:

• Risk Assessments. The first step in effective risk management is understanding where vulnerabilities lie. Our software excels in pinpointing these areas through detailed risk assessments that evaluate the likelihood and impact of potential events on an organization’s strategic objectives.
• Policy Management. Robust policy management is essential to navigating the healthcare sector’s complex regulatory environment. Our enterprise risk management software solutions facilitate the development, distribution, and monitoring of compliance policies that are up-to-date with the latest healthcare regulations.
• Training Programs. Human error remains one of the largest risk factors in healthcare. Comprehensive training modules integrated into the ERMS help ensure that all staff are aware of the latest practices and procedures, reducing the risk of costly mistakes.
• Incident Reporting Tools. When incidents do occur, rapid response is crucial. Our software includes advanced incident reporting tools that allow for quick documentation and analysis of adverse events, helping mitigate damage and prevent future occurrences.

Transformative Benefits of Enterprise Risk Management Software

The deployment of enterprise risk management software brings transformative benefits:

• Enhanced Decision-Making. Real-time data and analytics provide a clear view of risk landscapes, enhancing the ability to make informed decisions quickly.
• Operational Efficiency and Compliance. Automating risk management tasks reduces manual labor and ensures ongoing compliance with healthcare regulations , reducing the risk of penalties.
• Improved Patient Safety and Satisfaction. By systematically managing risks and reducing errors, patient safety is enhanced, leading to better health outcomes, increased patient satisfaction, and enhanced patient retention.

Compliancy Group’s ERMS Will Transform Your Healthcare Risk Management Strategy

As the healthcare sector navigates a future marked by regulatory complexities and operational hurdles, the significance of advanced risk management solutions like those offered by Compliancy Group cannot be overstated.

By integrating our comprehensive enterprise risk management software, healthcare organizations are equipped and prepared to address tomorrow’s demands proactively.

Embrace the power of Compliancy Group’s ERMS to fortify your healthcare operations, ensuring a safer, more compliant, and more efficient service delivery system.

Contact us today for a personalized demonstration and see firsthand how our ERMS solutions simplify and enhance compliance. 

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ORIGINAL RESEARCH article

The role of grid management in community risk governance: a case study in yuelu, china.

• 1 School of Public Administration, Central South University, Changsha, China
• 2 School of Economics, Management and Law, University of South China, Hengyang, China

Objective: In this study, we aim to provide a comprehensive analysis of the effectiveness of the risk prevention and control mechanism within the grid management model for community risk prevention. We emphasize the importance of thoroughly examining the risk prevention and control mechanism to enhance risk management efforts in urban communities, particularly in response to unforeseen outbreaks such as COVID-19.

Methods: Case studies are widely acknowledged as one of the most effective approaches to examine governance in China. In this study, the “Yuelu Model” serves as an illustrative example to demonstrate the application and effectiveness of grid management in community risk governance. To ensure the validity of the case study, it is imperative to adhere to the principle of representativeness. The collection of case data involves a combination of primary and secondary sources, and supplementary information is obtained through follow-up investigations conducted via WeChat, telephone, and other means, thereby enhancing the comprehensiveness and accuracy of the data.

Results: Our analysis reveals significant findings regarding the impact of the grid management model, fulfilling a triple role as a “Social Safety Valve” in the management process: (1) Community stress reduction function, (2) Community alarm function, and (3) Community integration function. Furthermore, we explore the adaptability of the grid management mechanism in addressing community risks, highlighting its effectiveness and potential for broader application.

Discussion: The findings of this study suggest that: Firstly, it is crucial to establish a shared information repository among different departments on a big data platform. Secondly, a dynamic government public information internal network should be established through collaborative efforts among multiple departments. Thirdly, implementing a regular (or periodic) early warning mechanism is essential. Lastly, the establishment of a high-quality talent team for power grid management is highly recommended. Our research provides valuable insights to enhance community risk governance.

1 Introduction

1.1 background and objective.

The outbreak and rapid spread of the Corona Virus Disease 2019 (COVID-19) continually challenge the management capacity and pandemic prevention measures of urban communities in China. As China’s economic and social system reform progresses, certain long-standing social conflicts are gradually surfacing and escalating. The Third Plenary Session of the 18th Communist Party China Central Committee proposed innovative reforms to the social governance system. The proposed direction includes focusing on grid management and social services, as well as improving the comprehensive service management platform at the grassroots level. In essence, grid management can be seen as a responsive approach to address social management challenges arising from ongoing social changes. The societal structure prior to 1978 underwent significant transformation due to the influence of modernization forces, including market economic relations and political system reforms. The unit-based management approach faced challenges in adapting to the demands of market economic development. Additionally, the high population density and mobility within cities further compound these challenges, the mobility of the population, the high degree of differentiation of urban social groups, these factors pose significant challenges to urban social management ( 1 ). Therefore, grid management has emerged under the situation of frequent social conflicts and the proliferation of social contradictions.

The sudden and irregular nature of major public health events necessitates a response that combines flexibility and regularity. In the case of a sudden outbreak of a pandemic, focused control becomes imperative. There are three primary sets of contradictions to consider. Firstly, the randomness of disasters contradicts the regularity of traditional governance; second, the suddenness of major public health events contradicts the flexibility of government governance; and third, the comprehensiveness of outbreaks contradicts the lack of public services. The traditional top-down management approach is insufficient to meet real needs. Hence, the introduction of grid management becomes imperative. Grid management exhibits distinct characteristics, including horizontal expansion to the edges, vertical integration to grassroots levels, and comprehensive coverage across various domains.

Throughout the stages of human society, risk has been an inherent element. However, with the expansion of human activities and increased interactions, the impact of human actions and decisions on nature and society itself has grown, leading to heightened uncertainty and risk. Renowned sociologist Niklas Luhmann aptly described our current reality as a “society where there is no alternative to risk-taking” ( 2 ). Ulrich Beck further emphasized that, following the decline of traditional societies, humanity finds itself in a “risk society” during the process of modernization and globalization ( 3 ). Conceptually, risk is deeply embedded in modern society and is intertwined with human choices, behaviors, and various technical and institutional factors. The application of science and technology, social culture, legal systems, and other elements create uncertainties, potential dangers, and harms within social behavior and order. In a highly modernized societies, risk transcends individual behavior and extends beyond geographical and socio-cultural boundaries. The rapid development of advanced technology, expanding globalization, the strain on natural resources, and cultural clashes have introduced significant uncertainties and high risks to the domains of politics, economy, and culture in modern society.

Risk has become a pervasive phenomenon, present in all aspects of social development. Risk is not only shaped by the natural, political, and institutional environments in which individuals reside but also arises from collective and individual decisions, choices, and actions ( 4 ). Moreover, scholars have noted that social risks are closely intertwined with economic activities. As economic interactions become more frequent and economic development accelerates, conflicts of interest are more likely to arise. These conflicts increase the costs associated with social interactions, alter the overall sense of security and trust in society, and ultimately lead to heightened social tensions ( 5 ). Under the grid management model, the interconnection between the participating subjects and the expansion of social capital’s influence contribute to the heightened complexity of social risks. Risk has become an defining characteristic of modern society.

Therefore, the attention given to risk theory and related issues can be perceived as a reflection and conscious response of human society towards the matters of self-existence and development ( 6 ). The significance of risk theory lies in its provision of a new theoretical perspective that aids in comprehending the evolution, prevention, and control of risks across various domains within modern society. China is presently undergoing a phase of social transformation, and various conflicts of interest and conflicts and disputes are showing a proliferation. By bolstering the study of risk theory, raising risk awareness and crisis consciousness among societal actors, and enhancing the overall risk management and prevention capabilities of the entire society, the public can be equipped with scientific means to preempt and address diverse unexpected risks. This, in turn, enables a more rational response to social risks, adjustment of behaviors, and assurance of harmonious and sustainable societal development.

The grid management model is gaining prominence, and the majority of scholars extol its electronic and informatization features, as well as its capacity for speed and efficient service delivery through organizational innovation. However, there has been limited investigation into its mechanisms for risk prevention and control. Therefore, this paper focuses on comprehending risk governance in the grid urban community governance model. It seeks to determine the feasible and effective in risk prevention, and whether there are other risk points through a comprehensive analysis of its pathways.

1.2 Previous studies

As the term suggests, “grid” entails the partitioning of urban regions into administrative units known as “grids,” which function as the foundation for government management of local communities. In the early stages of grid management implementation, the key objective was to empower residents by fostering their self-management abilities and facilitating self-service initiatives. Additionally, it aimed to activate the latent potential for self-governance within society. Grid management, therefore, exemplifies the government’s aspiration to establish social order and foster harmonious coexistence within the community.

In academic research on grid risk governance, three main perspectives can be identified:

One is the analysis of risk evolution and stages in grid governance. By studying the process of risk evolution in complex projects and urban communities, different stages can be identified and the key elements and influencing mechanisms of each stage can be analyzed in depth ( 7 ). This evolutionary perspective reveals the process of risk governance from accumulation to amplification and then to crisis eruption, providing theoretical support for addressing challenges at different stages. Through the analysis of risk evolution in governance, targeted grid governance models can be developed to effectively address the accumulation and eruption of governance risks ( 8 ).

The second is the study of grid structure and collaborative governance. This perspective focuses on the operation and distribution of power in grid management, particularly the interaction between vertical and horizontal power ( 9 , 10 ). Researchers can explore the impact of power structure on grid governance and the balance between vertical and horizontal power ( 11 ). Within this perspective, researchers can emphasize the importance of multi-stakeholder participation under government leadership through the study of collaborative governance models of power structure, aiming to achieve a balance in power structure and enhance the public nature of community governance ( 12 ).

The third is the study of technology and institutional dynamics in grid management. This perspective focuses on the role and impact of technology in grid governance and examines the influence of technological innovation on institutions ( 13 ). Researchers can investigate the effects of technology introduction in grid management and the institutional rigidity resulting from technology ( 14 ). To exemplify, community-based grid management plays an important role in identifying, screening, and referring infected persons with infectious diseases ( 15 ). They can explore ways to enhance institutional flexibility to adapt to the challenges brought by technological innovation ( 16 – 18 ). Specifically, this perspective highlights the establishment of flexible institutional rules, the encouragement of innovative practices, and the moderate introduction of technological support to promote the flexibility and innovative capacity of grid management.

In fact, the grid management approach has been widely implemented globally and has shown positive results in various cities and countries. For example, many cities in China have adopted grid management methods, including Shanghai, Guangzhou, Shenzhen, and others. These cities divide their urban areas into grid units to achieve more efficient urban management and service delivery. Through grid management, city administrators can have a more precise understanding of the needs and issues of the city and take targeted measures accordingly.

However, the existing literature exhibits a fragmented research trend, lacking a comprehensive explanation for the mechanism of grid management’s role in community risk prevention and control. Specifically, it fails to consider the integrated impact of risk structure and risk perception on risk transformation. In light of Lewis Coser’s conflict theory, this paper aims to address this gap by focusing on the application of grid management in community risk management. It seeks to explore how grid management facilitates effective risk prevention and control within communities.

2 Theoretical framework

This paper analyzes the risk governance of urban community grid management based on Lewis Coser’s social safety valve theory. The social conflict school posits that society is a complex system composed of interconnected components, giving rise to imbalances, tensions, and conflicts ( 19 ) among the connected parts. This conflict is a struggle over values, rare status, rights, and resources. There are both positive and negative functions of conflict, but unlike functionalism, which emphasizes the negative functions of conflict, social conflict theory focuses more on the positive functions of conflict and considers conflict as a norm. It is the social safety valve theory that expresses the positive functional point of conflict. In his safety valve theory, Lewis Coser states that “safety valves” are customs and institutions that provide institutionalized outlets for hostility and general internal drives that are repressed by the group, a socially sanctioned framework for conducting conflict without leading to the disruption of in-group relations, and a role as a channel for venting and releasing. Failure to provide such outlets for the release of hostility can damage the relationship between the opposing parties ( 20 ). Generally, social systems provide people with institutions to vent hostile and offensive emotions, i.e., safety valve systems, which help maintain the relationship between the opposing parties and preserve the stability of the system. The more rigid a social structure is, the more the value of the safety valve mechanism can be demonstrated. A rigid society is fragile and does not allow for conflict. If the abolition of the “safety valve” mechanism, hostility has nowhere to vent, then there will be a great danger to society once the outbreak will certainly cause structural damage to society. At present, China’s development is at an important strategic opportunity stage, with dramatic social changes, more conflicts within groups, many contradictions overlapping, and increased risks and hidden dangers. If we do not provide an effective channel for venting, it may cause a major crisis in the entire social structure. The grid community management model that we are going to explore in this paper plays the role of a safety valve in the current Chinese society, providing a means and a channel to vent the discontent in the social transformation, to remove the potential threat to the social structure, i.e., social risk. Gird governance aims to establish a novel and cohesivesocial management system through system integration, information integration, process re-engineering, performance evaluation, cooperative governance, and integrity management ( 21 ). This model is “a process re-engineering of public services, which provides a public service that is demand-driven, refined, personalized and comprehensive, and achieves a breakthrough and transcendence of seamless government” ( 12 ).

Lewis Coser’s social safety valve theory has the following three distinctive features: (1) allowing the existence of conflict. He argues that “conflict cleanses the air” and that a system that allows hostile feelings to escape while leaving mutual relations intact acts as a lightning rod. It prevents the accumulation of blocked hostile tendencies by allowing the free expression of behavior. (2) Social conflict points to alternative targets. Lewis Coser notes that “we use the term ‘safety valve’ to denote a system that directs discontent to alternative targets (or that provides the means for such diversion), rather than a system that allows conflict to manifest itself” ( 20 ). (3) Social safety valves are diverse. For example, trade associations, people’s congress systems, judicial mediation, social organizations, etc., and even political jokes can serve as safety valves, all of which can provide decompression energy for hostility.

The problem of risk in community management arises first from the risk of gaming between community parties. This type of risk is endogenous and man-made. The complex game among community residents or owners’ associations, owners’ committees, community neighborhood committees, community party branches, property management companies, community sanitation, and other service organizations increases the possibility of unspecified risks ( 22 ). The main risks are the tension between community autonomy and government domination, the lack of position, overstepping and misalignment caused by the interlocking functions between community committees and party branches, and the imbalance between community residents and the supply and demand of public goods, including material public goods and spiritual public goods, involving the supply and demand of necessities such as water, gas, electricity, network communication, and other service products. The risk of conflict between the owners of the community and the owners’ committee and the risk of conflict between the owners of the community and the property service companies is mainly caused by the dissatisfaction of the owners with the quality of property management and the service fees charged. The public revenue of the community is also of special concern to the owners, such as the public facilities and equipment, social organizations, etc.

Institutional risks in community governance arise from the process of institutionalization and standardization. This includes hidden risks within the system, where experts involved in system creation may be aware of defects but downplay them when explaining the system to the public. Operational blockages and malfunctions can also generate related risks. The complexity of community building during the transition period leads to variability and instability, resulting in the absence, misalignment, and mismatch of systems. This not only increases system risks but also raises concerns about the credibility of the system itself, leading to moral risks among society members ( 23 , 24 ). In addition, community management styles, tools, and mechanisms can also generate corresponding risks. Based on this, this paper discusses the “Social Safety Valve” function of grid management for communities from three perspectives: community stress reduction function, community alarm function, and community integration function, according to the expression of social conflict function ( Figure 1 ).

Figure 1 . The role of grid management in community risk governance.

3 Methodology and case introduction

3.1 methodology.

The case study approach facilitates the understanding of various aspects of the subject of the study, which leads to a comprehensive and in-depth understanding of the subject. Secondly, case studies help to clarify concepts and identify variables, thus facilitating further empirical research. It also helps to conduct exploratory research to identify important variables and provide useful categories to formulate hypotheses or build theories. Due to the extensive and in-depth information. Case studies facilitate an objective, in-depth, and accurate grasp of the problems and needs of the research subjects and their causal mechanisms. It is conducive to proposing effective and specific approaches or solutions to the problem.

This paper mainly applies a case study as a tool and selects the “Yuelu model” as the research object. Yuelu District has been awarded the title of “Top Ten Social Management Innovation,” ranking first in the country. Moreover, in the second national harmonious community building demonstration unit creation activities, the district Xianjiahu Street, Guanshaling Street, and five communities were awarded the national harmonious community building demonstration unit, and Yuelu District was evaluated as a national harmonious community building demonstration city; four units, including Changhua Community, were evaluated as national civilized units and civilized villages and towns. 1 Thus, the study of the risk prevention and control mechanism of grid management in Yuelu District is representative. To find out the answers to the questions raised in this paper, the authors obtained survey information through many official documents, information retrieval, and collection.

3.2 Case introduction

Yuelu District is located on the west bank of the Xiangjiang River in Changsha, with 17 streets (towns), 167 communities (villages), a total area of 552 square kilometers, and a resident population of 820,000. Grid management is first established in the district’s 17 streets (towns) under the jurisdiction of communities (villages), scenic spots (parks), building a grid responsibility system based on communities (villages), scenic spots (parks) as the basic unit, the implementation of grid management, to maintain the normal long-term effect of urban management, to achieve the work content in the grid, responsibility in the grid, supervision in the grid, assessment in the grid work objectives. In recent years, Yuelu District has made useful explorations in social governance by adhering to source management, taking grid management and social services as the direction, taking “grid+” as the breakthrough, improving the comprehensive service management platform at the grassroots level, reflecting, and coordinating people’s interests and demands in various aspects and levels promptly, and innovating and continuously improving. Certain results have been achieved. The specific workflow is shown in Figure 2 below:

Figure 2 . Flowchart of grid management work in Yuelu District.

To maximize community mobilization, implement grid management, comprehensive prevention and control measures, and group prevention and control. This ensures early detection, reporting, isolation, diagnosis, and treatment, preventing the import, spread, and export of the pandemic while controlling its transmission. The community carries out appropriate prevention and control strategies and measures according to different pandemic situations ( Table 1 ).

Table 1 . Prevention and control strategies and measures for different pandemic situations in the community.

3.2.1 Management network division

The administrative boundary of the community (planning committee, village) is used as the standard to divide the basic responsibility grid, and the whole area is divided into 158 basic responsibility grids (151 in the community and village; 7 in the scenic area, and parks). And following the standard of 1,000 people, 300 households or so in the community grid set up street type, cell type, and unit type small grid a total of 722. The process of defining the boundaries of each grid involves urban roads, with the road median as the demarcation standard, and all basic responsibility grids cover every road, every building, and every facility unit.

3.2.2 Grid personnel duties and work requirements

The first category is the grid manager. The grid chief is the director or secretary of the community to which the basic responsibility grid belongs, responsible for the unified scheduling of the grid administrator to carry out the work, the grid set up a unified signage, formula grid management personnel. The second category is the professional grid member. The professional grid clerk by the city, district, and street has three “ten members” (municipal, sanitation, gardening, street community, urban management law enforcement, wardens, water, electricity, communications, and traffic police). The third category is the grid responsible personnel. Grid responsibility personnel is mainly for the basic responsibility network. Major urban management problems that cannot be disposed of promptly within the basic responsibility grid should be established as a transfer mechanism and transferred to the relevant units on time, and the relevant units should organize emergency mobile forces for timely disposal to ensure good order within the basic grid.

4 Triple role play of “social safety valve” for grid management

The complete risk management process starts with risk identification, based on risk evaluation, risk warning, crisis response, and continuous improvement at all stages of risk management through continuous monitoring and review. Risk identification is the starting point for effective prevention and control of community risks. Due to the complex composition of community members and trivial matters, we often reacted passively in the past due to the inability to grasp the source of risks. In the “First National Governance Summit Forum and Top 100 Outstanding Achievements in Governance Innovation,” the “Yuelu Model,” with its grid management, social services, information support, and front-line law protection, has been bravely explored in Changsha’s Yuelu District. The “four-in-one” social governance model was awarded the title of “Top 10 Social Management Innovation” in China. The role of Grid Management is shown in Table 2 below:

Table 2 . Triple role play of “Social Safety Valve” for grid management.

4.1 Community stress reduction function

Social stress reduction, that is, to reduce or alleviate the hostility between groups in social conflicts. The stress reduction function, which provides a mechanism for draining hostile and aggressive emotions and preserving the social system by organizing possible conflicts in other parties or mitigating their destructive effects, thus releasing the closed tensions, is the most fundamental function of the safety valve system and the basis on which other functions can be performed. The “Yuelu model” grid management has achieved “Two Models”:

4.1.1 “A + B + C + D” model of grid management

Urban management grid management issues are divided into four categories according to the level of disposal matters: A category for the basic responsibility grid responsible for disposal matters; B category for the street with the basic responsibility grid responsible for disposal matters; C category for the city and district management departments linkage disposal matters; D category for the municipal departments’ disposal matters.

A category problems are self-disposed on-site, B category problems are reported to the street grid platform for assignment to relevant departments, and C category problems are reported to the district city management platform for task assignment. Finally, D category problems are reported to the city management platform for disposal by the respective departments. This framework ensures effective and efficient management of urban issues through the grid system.

4.1.2 First-line method guarantee

The aforementioned measures effectively mitigate community risks through various strategies. 2 Firstly, by adhering to the principles of “fixed point, fixed person, and fixed time,” leadership cadres establish direct connections with grassroots communities, promptly addressing their needs and resolving potential risks. Secondly, the implementation of a networked community management system fosters seamless collaboration among district-level leadership, functional departments, and community section cadres, facilitating efficient resource allocation and risk management. Additionally, information regarding community management divisions and cadre responsibilities is transparently publicized through channels such as publicity windows, electronic display screens, and signs. This ensures accountability and enables quantifiable evaluations of cadre performance, focusing on their proactiveness, problem-solving abilities, and community satisfaction. These comprehensive approaches enhance the coordination, transparency, and effectiveness of community risk management, ultimately reducing the potential impact of risks within the community.

Yuelu District Administration has solved the problems of the public promptly. As of November 17, 2020, the council received and processed a total of 21,824 work orders for complaints and reports, which have been completed by 20,750, with a completion rate of about 95.08℅ and a satisfaction rate of more than 98%. Importantly, there have been no collective letter and petition incidents and public opinion incidents have occurred.

4.2 Community alarm function

The social alarm function means that the social manager or the ruling class can observe and understand the people’s situation and estimate the level of social group conflict through the “safety valve.” The “Yuelu model” grid management has achieved “Four Major Warnings”:

First, management warning. In the “Yuelu model” of urban management grid management issues are divided into four categories according to the level of disposal matters, that is, according to the number of social contradictions, work tasks, and other factors, all grids are divided: A for the basic responsibility of the grid responsible for disposal matters; B for the street with the basic responsibility of the grid responsible for disposal matters; C for City and district management departments linkage disposal matters; D class for the municipal department’s disposal matters. By configuring different levels of risk disposal powers, the disposal of unexpected events at different levels can be achieved.

Second, technical early warning. The “Yuelu Model” also applies technical means to monitor risk parameters. For example, Xianjiahu Street has established a “sky network” and “ground network” monitoring system. Xianjiahu street “sky network” into the street comprehensive governance command center platform and community sub-control platform, “ground network” is installed in the jurisdiction of the intelligent face card camera and face recognition integrated control platform, to achieve full monitoring of the main roads, community entrances, and exits, etc. Coverage, “people-events-things” dynamic management, the formation of “sky-ground” remote echo of the work pattern.

Third, manual warning. The basic process of dealing with grid matters in Yuelu District is that each grid responsible person inspects the responsible grid during working hours, finds out all kinds of urban problems in the grid the first time, and takes self-disposal, telephone report, WeChat report, etc. to dispose of the problems in time. The grid platform categorizes and manages tasks into four levels: A, B, C, and D, enabling a shift in community management from reactive problem-solving to proactive issue detection, and from post-enforcement to front-end service management.

Fourth, regular alerts. On the 28th of each month, leadingin direct communication with the masses during their stationing. On the stationing day, the convener of each village and community grid are responsible for holding a face-to-face meeting to discuss the collected issues and propose feasible solutions. The stationing day is warm for party members to contact the masses and cadres to face them directly. Based on the risk analysis, the network management will issue regular alerts on the type, cause, manner, location, extent, and frequency of potential risks, which will help alert people to take effective prevention and control measures.

4.3 Community integration function

The community integration function is to promote community integration, that is, conflict drives social groups to divide, and divided groups come together and solidify into groups. For social groups, releasing tensions can remove the divisive elements of hostile relationships and reestablish unity, thus serving the function of intra-group cohesion and integration. The “Yuelu model” grid management has achieved “Three Integrations”:

4.3.1 Integration of organizations: “1 + N” socialized services

Socialized service is the integration of resources to provide diversified services. Grid is the carrier; service is the purpose. Social governance emphasizes the participation of multiple subjects, especially to stimulate the vitality of society. The “Yuelu Model” proposes grid management, and the “1 + N” working model ( Figure 3 ) puts matters closely related to the people in the grid area to specific people, effectively identifying risks and helping to extinguish the “fuse” of “burning the “fuse” of the “substance.” In the “1 + N” model, the main role of the people in the community risk management is highlighted, the grid leader and the grid supervisor, grid manager, grid public information officer, grid security officer, respectively, by the street (town) cadres, community (village) members of the two committees, the street (town) mobile population and rental housing coordinators and household police The “four members,” together with “N” represents the social forces of building leaders, party volunteers, information teams, residents’ associations, constituting the “eyes” to find sources of danger, feedback problems “and “tentacles” ( 12 ). Gird management extends grassroots work to all parts of society, from “outside the walls” of the neighborhood to “inside the walls” of the residential area in the management area, and from “8 h” to “24 h” in the management time. The management time is extended from “8 h” to “24 h,” and the social control covers all aspects and elements of “people, things, objects, and organizations,” weaving a meticulous “risk network”, that is, as long as there are hints of harm to community safety, immediately trigger the response of the grid personnel, to maximize the elimination of management blind spots and management dead ends, prevention and control of risks and hidden dangers.

Figure 3 . The “1 + N” working model.

4.3.2 Integration of information: information technology support

Build a platform to implement fine management. To maximize the effectiveness of social governance, Yuelu District makes full use of modern information network technology to develop a high-level comprehensive, integrated, and shared network information system to implement full-time monitoring of the grid and connect the network and transfer information to the street (township) and each community (village) to provide a network service platform for social management services. At the same time, it is designed with five modules of general security, urban management, party building and group, economic management, and social affairs, involving 34 major categories, 125 sub-categories, 468 sub-categories, and 693 sub-services. By implementing a six-step closed-loop process of information collection, case establishment, command dispatch, feedback handling, case verification, and assessment, a classification and time-limited processing system is established, ensuring the orderly operation of the network system and enabling precise and efficient management services. As shown in Figure 4 below:

Figure 4 . The “Six-Step Closed-Loop Process” model.

4.3.3 Integration of personnel: risk governance subject

The grid management model can effectively extend the chain of social governance and mobilize more people to join the community governance team consciously. The X service model of “one grid, one party group, one autonomous organization, and one volunteer team or association” not only reduces the cost of social management by the party committee and government but also helps the public to improve their ability to educate themselves, manage themselves and solve problems on their own. Some communities have made efforts from “hard power,” not only introducing, and cultivating several high-quality property management enterprises, but also cooperating with small and micro enterprises closely supporting community life, to provide better services for community residents; some communities have improved from “soft power.” The development and growth of arts and culture teams, mainly art lovers, have greatly enriched the cultural life of the community. Gird management has changed the previous state of life, where people knew what they were doing, and now they have someone to take care of everything, which has relieved grassroots conflicts and smoothly expressed their interests. The relationship between the cadres and the community has become closer, and the satisfaction and happiness index of the residents has been greatly improved.

The “Yuelu Model” systematically deploys and coordinates arrangements at three levels, optimizes, integrates multiple resources, and achieves rapid linkage ( Figure 5 ). By fully mobilizing units and functional departments to participate in and support social management work, information from public security, family planning, civil affairs, social security, and other departments are incorporated into a comprehensive resource base, facilitating effective information sharing. This model breaks down the division of neighborhoods and establishes a comprehensive set of basic information databases that integrate population, unit information, and housing information, covering science, education, culture, and health, etc.; secondly, integrating organizational resources, generally establishing multi-disciplinary management service teams composed of government organizations, social organizations, and private enthusiasts, and enhancing the overall service capacity of the service teams; thirdly, integrating social resources, encouraging the participation of civil organizations and the public and give full play to the power of social capital. For example, the organization of retired older person comrades in the community set up a community volunteer patrol team to investigate the hidden dangers of law and order; serve as “Internet volunteer supervisors,” and regular conducting volunteer supervision in local Internet cafes.

Figure 5 . The risk governance logic and pathways of the “Yuelu Model.”

In short, the social safety valve ensures the reconstruction of the social system by using conflict as a method and a means to mitigate tensions and resolve conflicts, thus maintaining the stability of the social structure. In this process, the decompression function of the community is a prerequisite and basis for the implementation of other functions, the integration function of the community is implemented by controlling the rational emergence of conflicts, re-regulating the relationship between groups in the community structure, making the initial observation and clarification of the situation of the inhabitants, and preventing the degree of conflict emergence, i.e., the social warning function. These three functions do not operate in isolation from each other. But are closely linked on the logical basis of the conflict-positive function and operate progressively as community members interact.

6 Discussion

At present, the comprehensive construction of a moderately prosperous society has entered a decisive stage. Community safety is a basic requirement for the happiness and well-being of residents, a prerequisite for the development of grassroots society, and an important cornerstone for the stability of the state. Enhancing the awareness of worry and risk, and being prepared for danger in times of peace and preparedness is a major principle that must always be adhered to in the process of social governance. For more accurate and scientific community grid management and effective risk prevention and control, we also need to enhance risk awareness, take advantage of new technologies, and further optimize risk prevention and control mechanisms.

First, based on big data as a platform, a shared information base is established among various departments. Through the mastery of the risk factors identified and analyzed, manual dynamic identification and information sharing of possible risks are carried out in the process of risk management in due course. Led by the Comprehensive Governance Committee, the public security organs play the role of the main force, the relevant departments work closely together, relying closely on grassroots organizations, and strive to form a multi-participation and shared work situation.

Second, through multi-departmental linkage to establish a dynamic government intranet of public information, the application of technical means, through risk analysis, set up automatic detection technology system to detect risk parameters, that is, the “security threshold “, and issue risk warnings when the set security threshold is reached, to guide the relevant departments to carry out risk prevention and control.

Third, establish a regular (or periodic) warning mechanism. Based on risk analysis, regular (monthly, quarterly, or yearly) early warnings on possible risk types, causes, ways of occurrence, location, degree, frequency, etc., are issued to draw “risk maps” to raise awareness and guide the relevant departments to take effective measures to prevent and control.

Fourth, to provide regular training for grid supervisors, grid administrators, grid public information officers, and grid security officers to establish a high-quality grid management talent team. The implementation of comprehensive risk prevention and control mechanism is inseparable from the quality of the talented team of each department, through regular job training mechanisms for assessment, improving the alertness and identification ability quality of the grid management personnel, to ensure the lean and excellent risk prevention and control team, to ensure the successful implementation of the risk prevention and control mechanism in the process of social governance.

From the analysis above, it can be seen that the grid based management mechanism has shown strong adaptability in responding to community risks. While seeing its positive effects, we should also note that the grid management model has risks and defects. The current grid management is not proposed to be established under the framework of adequate theoretical research and then put into practice, and there are inherent risks and defects in the management model itself. The grid management of urban communities is a three-level organizational structure composed of streets, communities, and grids, which is equivalent to adding a governance level beyond streets and communities and extending the chain of social governance. Under this new organizational structure, the specific task of realizing community governance is in the three-level grid, i.e., residential neighborhoods, buildings, and units in the community ( 25 ). Although there is no substantial institution in the lowest level of the three-tier grid, the decentralization of administrative resources and grid community party building have increased the difficulty of information transmission, demand response, and functional coordination in the governance process. Therefore, because of the increase in the governance level, the corresponding management institutions should be increased. For example, some cities have set up management agencies for community grid management of the resident grid members, grid members, etc. To carry out unified management. This will inevitably cause a series of problems such as the increase of administrative layers and the expansion of institutions. The increase in personnel due to the increase in the number of layers and the expansion of agencies further aggravates the financial burden, thus forming a vicious circle ( 26 ).

7 Conclusion

Social stability is the prerequisite for national strength, and grassroots governance is the cornerstone of national governance. Urban community grid management systems often become self-reinforcing, hindering community autonomy and self-governance. The administrative-led nature conflicts with residents’ aspirations for autonomy and rights ( 18 ). This weakens community participation, social organizations, public spirit, innovation, and vitality ( 27 ). Without timely adjustments, it impacts effectiveness and hinders China’s grassroots social governance. Analyzing risk prevention, identifying sources, and enhancing measures are crucial for a cooperative governance model. This builds a harmonious society in the long term.

With over 10 years of grid management practice, the “Yuelu Model” has emerged, incorporating grid management, social services, information support, and front-line legal safeguards into a unified framework, promoting a comprehensive and integrated approach to grid management services. Undoubtedly, the success of the “Yuelu Model” grid management clearly demonstrates the significant role played by grid management in community risk prevention and control. Grid management is an innovative approach to grassroots social governance. To strengthen the grid management for community prevention and control, it is necessary to leverage information technology as a key driver and pursue refined management as the objective. By fully integrating grassroots resources, we can achieve precise risk prevention and control in the community.

Data availability statement

The original contributions presented in the study are included in the article/supplementary material, further inquiries can be directed to the corresponding author.

Author contributions

SG: Conceptualization, Methodology, Validation, Writing – review & editing. WL: Data curation, Investigation, Software, Writing – original draft, Writing – review & editing.

The author(s) declare financial support was received for the research, authorship, and/or publication of this article. This work was supported by the National Natural Science Foundation of China, 72374225 and the Hunan provincial department of Science and Technology’s 2021-2022 Key Research and Development Program, 2022SK2094.

Conflict of interest

The authors declare that the research was conducted in the absence of any commercial or financial relationships that could be construed as a potential conflict of interest.

Publisher's note

All claims expressed in this article are solely those of the authors and do not necessarily represent those of their affiliated organizations, or those of the publisher, the editors and the reviewers. Any product that may be evaluated in this article, or claim that may be made by its manufacturer, is not guaranteed or endorsed by the publisher.

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2. ^ Grassroots Practice and Reflections on Gird Management Services in Social Governance Innovation - Taking the Urban Area of Changsha City as an Example, Journal of the Party School of the Sichuan Provincial Committee of the Communist Party of China, 2014 Zhang Kelan.

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Keywords: grid management, social risk, community risk governance, social safety valve, community public health

Citation: Gao S and Liu W (2024) The role of grid management in community risk governance: a case study in Yuelu, China. Front. Public Health . 12:1353890. doi: 10.3389/fpubh.2024.1353890

Received: 13 December 2023; Accepted: 06 May 2024; Published: 16 May 2024.

Reviewed by:

Copyright © 2024 Gao and Liu. This is an open-access article distributed under the terms of the Creative Commons Attribution License (CC BY) . The use, distribution or reproduction in other forums is permitted, provided the original author(s) and the copyright owner(s) are credited and that the original publication in this journal is cited, in accordance with accepted academic practice. No use, distribution or reproduction is permitted which does not comply with these terms.

*Correspondence: Wenhui Liu, [email protected]

Disclaimer: All claims expressed in this article are solely those of the authors and do not necessarily represent those of their affiliated organizations, or those of the publisher, the editors and the reviewers. Any product that may be evaluated in this article or claim that may be made by its manufacturer is not guaranteed or endorsed by the publisher.

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Case study: Smartly reducing your investment while maintaining market exposure

Koen Hoorelbeke

Options Strategist

Summary:  This case study illustrates how Alex strategically employs long-term call options to both realize profits and maintain exposure to NVIDIA stock. By adjusting his holdings through these options, he secures gains while keeping potential for future growth, showcasing effective risk management and investment foresight.

Introduction:

In the dynamic world of investing, the ability to adapt strategies to changing market conditions is crucial for maximizing returns while managing risks. For buy-and-hold investors like Alex, who have seen substantial gains in certain stocks, the challenge often lies in realizing profits without losing potential future growth. This case study explores how strategic use of long-term call options can provide an innovative solution to this dilemma, allowing investors to secure gains and maintain market exposure simultaneously.

Important note : the strategies and examples provided in this article are purely for educational purposes. They are intended to assist in shaping your thought process and should not be replicated or implemented without careful consideration. Every investor or trader must conduct their own due diligence and take into account their unique financial situation, risk tolerance, and investment objectives before making any decisions. Remember, investing in the stock market carries risk, and it's crucial to make informed decisions.

Background:

Meet Alex, an investor with a portfolio valued at $153,319, showing a profit of $44,534 from an initial investment of $108,785. His holdings include various stocks, but a significant portion of his profit comes from his investment in NVIDIA Corporation (nvda), which currently constitutes 55% of his portfolio's total value.

Alex's NVIDIA shares have appreciated significantly, and he's looking to realize some of these gains. However, he wants to maintain his market exposure to NVIDIA due to its potential for further growth.

Solution: Using a long-term call option:

To achieve his goals, Alex decides to buy a long-term call option on NVIDIA. This option will allow him to buy NVIDIA shares at a set price of $850 each anytime until the option expires in June 2025, regardless of how high the stock price goes. This option costs him $20,300 for one contract, which covers 100 shares.

Portfolio overview:

Here is a breakdown of Alex's current portfolio before any transactions:

• NVIDIA (nvda) : 100 shares at a buy price of $496, now valued at $847.2 each, totaling $84,720.
• Other holdings : Includes stocks like PayPal (pypl), Nike (nke), and Palantir (pltr), with various performances and allocations within the portfolio.

Financial mechanics simplified:

• Current stock position : Alex holds 100 shares of NVIDIA.
• Option purchase : The call option has a cost of $20,300 and provides similar market exposure to owning approximately 66 shares of NVIDIA.

How many shares can Alex sell?

By purchasing the call option, Alex can sell about 66 shares of NVIDIA without reducing his effective market exposure to NVIDIA's future price movements. This is because the option helps maintain a similar level of investment influence as the shares he plans to sell. Specifically, the call option has a delta of 0.66, which means that one contract of the option (covering 100 shares) effectively corresponds to the exposure of owning 66 shares of the stock (0.66 * 100 = 66).  

• Reduced direct investment : Alex can reduce his direct exposure by selling 66 shares, which would secure approximately $56,000 (66 shares × $847.20/share). After accounting for the cost of the option ($20,300), the net amount secured is about $35,700. This allows him to use these funds for other investment opportunities or to diversify his portfolio further.
• Maintained market exposure : The long-term option ensures that Alex still benefits from potential price increases in NVIDIA's stock.
• Flexibility and security : This strategy allows Alex to lock in profits while keeping the flexibility to participate in future growth, providing a balanced approach to managing his successful investment.

While using long-term options can offer significant advantages, there are inherent risks to consider:

• Premium cost : The initial cost of the option ($20,300) is a sunk cost, meaning it is not recoverable if the option expires worthless. This represents a fixed loss if NVIDIA's stock price does not perform as expected.
• Volatility and time decay : Options are sensitive to changes in market volatility and lose value over time as they approach expiration — a phenomenon known as time decay. If NVIDIA's stock price remains below the strike price as the expiration date nears, the value of the option could decrease significantly.

Conclusion:

This approach allows Alex to capitalize on his gains in a high-performing stock while strategically maintaining his position for future growth. By using a long-term call option, Alex smartly adjusts his portfolio to reduce risk and secure profits, demonstrating a prudent method of portfolio management in a rising market. However, it's essential for Alex to consider the risks associated with options trading and monitor his investments accordingly.

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• Open access
• Published: 06 May 2024

From isolation to revival: trade recovery amid global health crises

• Lijuan Yang   ORCID: orcid.org/0000-0003-2042-6431 1  

Globalization and Health volume  20 , Article number:  38 ( 2024 ) Cite this article

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The COVID-19 pandemic has highlighted the importance of designing effective trade recovery measures in response to global health events (GHEs). This study combines international trade risk management theory and multi-case comparative analysis of past GHEs to present a theoretical framework for designing national trade recovery measures for future events.

The research finds that during GHEs, trade risks shift to fundamental uncertainty, requiring spatial–temporal-subject dimension recovery measures. The study suggests changing the focus of trade recovery policy design from emergency-oriented and single-dimension measures to reserve-oriented and enduring-effect measures of comprehensive dimensions at micro- and macroeconomic levels.

The study contributes to the debate on managing trade risks in times of crisis, where there is a need to develop effective trade recovery measures that account for the complexities of global trade and the unique challenges of GHEs. The findings provide practical guidance for trade officials and policymakers to design measures in response to GHEs to improve a country’s overall trade recovery.

Global health events (GHEs), defined as pandemics or crises that widely influence people’s health, have major repercussions. Countries affected by GHEs Footnote 1 need to implement trade recovery measures to resume trade [ 1 ]. Footnote 2 These measures are crucial for mitigating the risks of capital, trade, and supply chain disruptions caused by disasters, reducing the burden of epidemics, and boosting national and global economies. Current research on GHEs is concentrated on medicine and public health issues, and only a few economic studies have been conducted [ 2 , 3 , 4 , 5 ]. Even this limited research has tended to peak alongside health events and bottom out when they end. The process of recovering from GHEs by taking comprehensive measures has rarely been discussed. Therefore, by applying international trade risk management theory and multi-case studies, this study examines the design of national trade recovery measures and offers countermeasures for GHEs.

Fifteen GHEs have occurred since the 1990s (Table  1 ), highlighting that their economic impact exceeds their immediate health consequences and regional spread [ 6 ]. Geographically distant health events can potentially reverberate to unaffected countries through international trade [ 7 ]. GHEs adversely affect the country of origin, trade partners, and the global economy [ 8 ]. Globalization has further exacerbated this negative impact. Footnote 3 GHEs affect foreign trade. Footnote 4 The transfer effects of trade bans can drastically harm welfare [ 9 , 10 ], leading to structural fractures in imports and exports [ 11 ]. Moreover, biosecurity measures during disease outbreaks [ 12 ] can indirectly influence technical trade measures that affect emerging countries’ exports to developed countries.

Scholars advocate the following strategies to respond to GHEs. (1) Conducting response measures. Once a global health emergency is under control, it enters the international trade recovery stage. The countries involved in the event must renegotiate trade agreements with their trading partners, strengthen consumer expectations and confidence, and evaluate response measures [ 13 , 14 ]. (2) Planning and sequencing measures. The international trade recovery must transcend the risk model to plan and prioritize trade recovery measures based on the interdependence between public health and trade [ 15 , 16 ]. The affected areas must take pre- and post-prevention and mitigation measures after the disaster outbreak [ 17 ]. (3) Implementing regional measures. The United States (US) adopted regional measures to manage the highly pathogenic avian influenza pandemic and to resume and maintain trade. Trading partner countries accepted the regional recommendations and allowed poultry and poultry product imports from US regions without the disease [ 18 ].

Furthermore, countries must address factors influencing trade recovery, as various factors determine the extent of adverse effects on trade and the duration of recovery. Emerging countries need to follow and strictly enforce the standards of the World Health Organization (WHO) [ 19 ] and deal with dynamic changes in trade and supply chain nodes during GHEs [ 20 , 21 , 22 , 23 , 24 ]. These efforts should include modeling and scenario simulation based on epidemiology and economic theory [ 25 , 26 ], risk rating of GHEs [ 27 ], and artificial intelligence modeling for potential risks [ 28 ]. The models under continuous development must reflect the dynamic landscape of emergent situations [ 29 ].

Although the WHO and multilateral institutions do not recommend interrupting international trade following a GHE, limited research has provided targeted suggestions for countries to adopt an appropriate course of action [ 30 , 31 ]. The interconnectedness of global health and the global economy highlights the need for such a policy and the relevance of health security efforts [ 7 ] to mitigate immediate health risks and long-term economic disruption. Including economic policies as part of GHE policies leads to collaboration between epidemiologists and economists in an economy-wide pandemic or public health crisis modeling, thereby demonstrating potential benefits [ 32 , 33 ].

This study posits that trade recovery is a dynamic process; hence, designing appropriate trade recovery measures should consider spatiotemporal dimensions and specific stakeholders at various subject levels. Research on developing trade recovery measures covers the spatial dimension but overlooks the time dimension. Lee et al. [ 34 ] established spatiotemporal modeling but did not distinguish different subject levels. Combining the spatiotemporal dimension and specific subject levels in trade recovery measures is essential for their success, ensuring adaptability and coverage across diverse economies. Additionally, comparative studies on countries’ trade recovery after different GHEs are limited, and research on trade recovery measures remains restricted to a single dimension. A clear framework for countermeasures is yet to be developed.

This study investigates trade recovery measures in countries affected by GHEs. The method includes a theoretical analysis based on international trade risk management with comparative multi-case studies. This methodology was developed by scholars such as Stake [ 35 ] and Yin [ 36 ], who formalized the approach as a tool for conducting in-depth explorations within real-life contexts. This qualitative research method enables the examination of complex phenomena within their specific settings, making it particularly suitable for understanding the nuanced implications of trade recovery measures across different geopolitical and socio-economic landscapes.

We construct a time–space-subject recovery measure framework, combining cases from the trade recovery measures adopted by Mexico, the US following the outbreak of influenza A H1N1, Japan following nuclear leakage triggered by a tsunami, three West African countries (Guinea, Liberia, and Sierra Leone) following the outbreak of Ebola, and South Korea following the outbreak of the Middle East Respiratory Syndrome (MERS). The framework is to design trade recovery measures for possible future events and for countries that are yet to recover from the COVID-19 pandemic.

Historically, the case method has been leveraged in public health and international policy research [ 6 , 12 , 37 ], offering insights into policy development and implementation. Its adoption in this study, rather than more quantitative methods, allows for a deep, contextual analysis of policy effectiveness and adaptability in diverse scenarios, thereby enhancing our understanding of trade recovery strategies. The application of this framework also supports the synthesis of cross-sector policies, combining health imperatives with economic resilience to devise trade recovery roadmaps for both immediate and long-term strategic planning.

This study’s theoretical and practical contributions are as follows. (1) Exploration of spatiotemporal dimensions and subject-specific levels enriches the design of trade recovery measures, expanding extant research in international trade risk management theory by integrating contextual analysis into risk assessment and mitigation strategies. (2) A comparative analysis of consistency and heterogeneity in trade recovery measures across developed and emerging countries reveals gaps in public health emergency response mechanisms related to international trade, deepening the need for tailored strategies targeting specific economic vulnerabilities. (3) Insights obtained offer references for shaping national trade recovery policies in response to GHEs. Given the post-disaster recovery’s uncertainty, governments must enforce transformative measures [ 37 ], which are both adaptive and robust, to ensure economic stability and resilience.

Theoretical framework for designing trade recovery measures in GHE-affected countries

According to the international trade risk management theory [ 14 , 38 ], the health event emergency management system includes four stages: early warning, preventing spread, controlling or eliminating the event’s impact, and recovery. The emergency’s containment initiates the recovery phase. Countries and regions have a low proportion of recovery work in the health emergency management system, which must be fully developed for trade recovery from GHEs [ 14 ]. During the international trade recovery stage, the affected country must renegotiate trade agreements with its partners, enhance expectations, disseminate information to consumers, and evaluate the implementation effect of the trade recovery measures. Promptly identifying international trade risks and employing risk management measures can prevent and mitigate risks and ensure the smooth progression of trade.

During GHEs, trade policy, market demand, and competition vary; exchange rates between a country and its main trading partners fluctuate; or fixed rates are maintained at a significant cost, leading to objective risks. Although trade subjects cannot eliminate objective risks, they can actively prevent them. GHEs expand the scope of restrictions on the movement of people and goods, with continuously increasing uncertainty within the affected country’s trade environment. The subjective risk of decision-making errors and improper measures increases sharply as governments, organizations, and people face multiple pressures [ 39 ] and emergent behaviors.

GHE-initiated international trade risks are multidimensional, featuring a spatiotemporal evolution. Measured in time, an epidemic’s early, middle, and late stages face short- and medium-term risks. The risk extends from the epidemic’s origin to neighboring countries and major trading partners. With aggravating uncertainties and risk factors, the potential impact of GHEs on trade expands beyond short-term scales and localities, further increasing the complexity of trade recovery.

Subject levels, including international, national, industrial, enterprise, and consumer, simultaneously face systematic risks caused by GHEs. The cognitive prediction of events leads to pressure superposition, unbalanced considerations, and decision-making errors, thereby increasing the risk of improper measures. These risks are intertwined throughout GHEs, making it more difficult for affected countries to recover their normal trade levels [ 14 , 15 , 16 ]. Recovering from health events through only one type of measure is infeasible.

To address the international trade risks triggered by GHEs, the trade recovery countermeasures of affected countries must be strengthened in their spatiotemporal dimensions and include international, national, industrial, enterprise, and consumer groups for different subject levels. Efforts should include tracking the epidemic’s evolutionary stage and identifying its regional characteristics, as shown in [ 18 , 40 ], which highlighted the effectiveness of region-specific trade policies during the Ebola outbreak. Moreover, it is necessary establish a national trade recovery countermeasure repository featuring adequacy, flexibility, and completeness. These measures are essential to shift from an emergency single-trade recovery measure design to a comprehensive, long-term trade recovery measure design (Fig.  1 ).

Trend of goods exports in countries with GHEs, 1995–2018 (current price, USD 10 billion) . Source: Author’s analysis based on data from the World Bank Database

Comparative case study on trade recovery measures after GHEs

This study comparatively analyzed the trade recovery measures of relevant countries in the aftermath of four GHEs: the H1N1 influenza that developed in Mexico in 2009 and spread to the US, affecting both countries and their major trading partners; the 2011 Fukushima nuclear leak; the 2014 Ebola virus outbreak that spread rapidly in West Africa; and the 2015 MERS outbreak introduced to South Korea by international travelers. Despite their sudden onset, these GHEs triggered various national trade recovery measures because of differences in their nature.

A comparative case study methodology, conducive to exploring the characteristics of national trade recovery measures and the specifics of the events [ 41 ], supported by Yin [ 36 ] for its effective analysis of complex phenomena within realities, was applied. This method involves a systematic collection, comparison, and analysis of case data to identify patterns, test theories, and derive insights that are not apparent through singular case analyses. In implementing this methodology, this study meticulously documented the sequence of trade policy adjustments, timing (spatiotemporal dimensions), and targeted entities (subject dimensions) for each GHE case. This approach enabled the identification of overarching strategies that successfully mitigated trade disruptions, as well as frequent challenges across varied geopolitical and economic contexts. The analytical process involved detailed case descriptions to highlight similarities and differences in GHE impacts and trade response effectiveness. This structured analysis underscored the necessity of incorporating spatiotemporal and subject-specific considerations in formulating trade policies in response to GHEs. This leads to the argument for a nuanced, multidimensional approach to trade recovery policy-making.

Four GHEs this century

The 2009 h1n1 influenza pandemic.

The H1N1 influenza emerged in March 2009 in Mexico and the US. On June 11, 2009, the WHO declared it a global public health emergency of international concern [ 42 ], with the pandemic alert level peaking on this date [ 43 ]. The WHO declared the end of the pandemic in August 2010. In 18 months, it caused more than 18,000 deaths and affected more than 200 countries [ 44 ].

The 2011 Fukushima nuclear leak

On March 11, 2011, an earthquake struck the Pacific Ocean, causing a tsunami that triggered a nuclear leak [ 45 ]. The US announced an import ban on Japanese food from radiation-affected areas. Additionally, South Korea and the European Union issued trade bans, while China, Thailand, and Vietnam required radiation inspection certificates for food produced in Japan.

The 2014 Ebola epidemic

In March 2014, the Ebola epidemic broke out in Guinea, Sierra Leone, and Liberia in West Africa. In August 2014, the WHO declared it a GHE. The official report on October 15 revealed 8,997 cases and 4,493 deaths [ 46 ]. The WHO announced the end of the epidemic in Sierra Leone, Guinea, and Liberia in November 2015, December 2015, and January 2016, respectively.

The 2015 MERS epidemic

In May 2015, the first MERS case was diagnosed in South Korea, with the disease spreading in medical institutions. Thirty-six patients died, and 186 were infected [ 47 ]. As the disease did not exhibit sustained human-to-human transmission, it was not classified as an international public health emergency. In December 2015, the WHO declared the end of the outbreak.

Comparison of the four GHEs with national trade recovery

Similarities.

The H1N1 flu occurred in the wake of the 2008 global financial crisis, further slowing the recovery of the affected countries. Owing to travel restrictions and trade embargoes, the tourism industry lost USD 2.8 billion, with the trade deficit in pork and pork products’ reaching USD 27 million. Mexico’s exports fell by 26% in the first quarter of 2009 [ 48 ]. The US economy was struggling and reached a nadir after the subprime crisis. The Dow Jones Industrial Average closed at 6763.29 on March 2, 2009, the lowest since April 1997 [ 49 ]. The H1N1 outbreak in April 2009 significantly decreased US GDP, retail sales, and exports of pork and pork products.

As the Japanese government could not provide on-time tests for all trade partners, Japan’s agricultural products and food exports to these countries stagnated. In the first quarter of 2011, Japan’s economy contracted at an annual rate of 3.7% [ 50 ]. In the aftermath of the earthquake, tsunami, and nuclear leakage, the economy continued to shrink over the next 6 months (GDP fell 0.9% from January to March), and private consumption fell by 0.6%. In September 2012, the government announced that the country was entering a recession [ 50 ].

The Ebola epidemic affected transportation, tourism, agriculture, and mining. Trading countries and airlines issued travel restrictions to affected areas [ 46 ]. Agricultural production was affected, with the epidemic limiting the transport of agricultural products to consumer areas, raising product prices. Conakry’s governor banned Eid celebrations on October 2, 2014 [ 51 ]. Travel bans implemented by national authorities and airline flight suspensions [ 46 ] cut off trade among West African countries and their partners for about 6 months until August 31, 2014. The loss of workers and travel restrictions reduced mining activity. The US government sent USD 2.89 billion in foreign aid to West Africa, focusing its efforts on Liberia [ 51 ].

The MERS outbreak reduced the number of tourists visiting South Korea by 2.1 million, resulting in a loss of USD 2.6 billion in tourism revenue. Additionally, the accommodation, catering service, and transportation sectors suffered losses of USD 542 million, USD 359 million, and USD 106 million, respectively [ 52 ]. This pushed the transportation sector’s service index below the expected levels in June 2015 and the accommodation and catering industries’ service indexes below the expected levels in June and July 2015.

Heterogeneities

H1N1 flu was a pandemic caused by viral variants. The Fukushima event was a technological disaster triggered by a strong earthquake but mainly caused by industrialization [ 53 ]. The Ebola virus was a highly infectious and destructive disease; the widespread nature of the West African outbreak relates to the highly mobile communities and densely populated regions affected in the early stages [ 51 ]. South Korean cases of the MERS virus, which originated in Saudi Arabia, were introduced through international travel.

Duration and influence areas

The H1N1 flu lasted approximately 1 year, affecting Mexico and the US. Following the nuclear accident, some countries prohibited agri-food product imports from Japan’s irradiated areas from 2011 to the present (e.g., the US and China). Footnote 5 The Ebola epidemic lasted 2 years, primarily affecting African countries. More than 13,000 confirmed cases were reported globally, with 4,951 deaths and a 36% mortality rate by October 2014. Although the outbreak involved only three countries, there was widespread and intense transmission in the West African region, and four nations (Nigeria, Senegal, Spain, and the US) reported initial cases or localized transmission. The MERS epidemic was challenging for South Korea’s medical system for more than 7 months.

Event outcomes

After the H1N1 outbreak, countries restricted travel and banned the imports of pork products, which affected their trade with Mexico, the US, and the rest of the global economy. Unwarranted concerns based on inappropriate designations also led to official and unofficial bans by 17 countries on US pork and pork product imports, with China maintaining its ban until mid-December 2009 [ 54 ]. The Fukushima nuclear accident primarily affected Japan’s agricultural product exports because its trade partners were concerned about radioactive contamination [ 55 ], while the Ebola epidemic endangered Guinea, Sierra Leone, and Liberia’s economic growth, leading to trade stagnation, foreign investment withdrawal, and a food crisis. MERS negatively affected South Korea’s tourism industry.

Evidence for these event outcomes is as follows.

Impact of GHEs on export volumes

In 2009, Mexico and US export volumes decreased by 21.13% and 17.97%, respectively, over the previous year (Fig.  2 ). Japan’s commodity export volume increased by 6.94% in 2011 over 2010, with a limited share of the Fukushima agricultural food export in Japan’s total foreign trade. Guinea’s commodity exports increased by 10% in 2014 over 2013 but decreased by 13.79% in 2015 over 2014, indicating the Ebola epidemic’s lagging effect on Guinea’s exports. In 2014, Liberia’s and Sierra Leone’s merchandise exports decreased by 54.7% and 19.04%, respectively, over 2013. South Korea’s merchandise exports decreased by 8.02% in 2015 over 2014.

Trends in international tourism revenue changes in GHEs-affected countries, 1995–2018 (current price, USD 10 billion). Data for Guinea and Liberia are missing from the World Bank Database. Source: Author’s analysis based on data from the World Bank Database

International tourism income changes in countries affected by GHEs

Mexican and US revenues decreased by 14.83% and 11.36%, respectively, in 2009 over 2008, and Japan’s revenues decreased by 18.38% in 2012 over 2011. In Sierra Leone, revenues decreased by 46.97% in 2014 over 2013, and in South Korea, by 16.43% in 2015 over 2014 (Fig.  3 ). Income from trade and transport fell because of the closure policy adopted during the Ebola outbreak, which also disrupted other business activities [ 56 ].

Theoretical framework for the design of trade recovery measures for GHE-affected countries. Source: Author’s analysis

Trade recovery

Developed countries (i.e., the US, Canada, and South Korea) have relatively robust health systems, sound economic foundations, and short trade recovery periods. The H1N1 epidemic lasted a year, after which exports from Mexico and the US returned to pre-pandemic levels. As an emerging economy, Mexico maintained its trade with the US during the outbreak; thus, trade recovered rapidly. In 2010, Mexico and US tourism revenues exceeded the level achieved in the 2009 pandemic year.

The impact of the Fukushima nuclear leakage on Japan’s export trade and tourism industry was limited, especially within Fukushima prefecture. Although Japan’s international tourism revenue declined in early 2011, the number of foreign tourists to Japan returned to 70% of that year by September 2012. By contrast, it took more than a decade to eliminate the consequences of the Fukushima disaster on the agricultural product trade. Agriculture production and trade resumed when decontamination was confirmed, which took a long time. In 2017, trade levels improved, and international tourism numbers recovered, exceeding pre-GHE levels [ 57 ].

Even before the Ebola outbreak, West African countries were impoverished and pursuing economic development. Guinea, Sierra Leone, and Liberia recovered their export levels within 2 years of the outbreak, but the economic recovery time was long. Guinea’s export recovery was notable; its export trade increased in 2015 over 2014 before decreasing in 2016, although it remained above the pre-outbreak level. In 2015, Liberia’s export volume decreased by 20.57% and did not return to its pre-epidemic level until 2018. Sierra Leone’s exports declined slowly from 2015 until they increased in 2018; however, these are yet to achieve their pre-epidemic level. International tourism income increased by USD 2 million in 2015 over 2014 before fluctuating upward (Figs.  1 and 2 ).

Comparison of trade recovery measures in GHE-affected countries

The common points of the affected countries’ trade recovery measures include countries that chose active fiscal and monetary policies to achieve trade recovery. Consumers, enterprises, and significantly damaged industries were crucial areas for trade recovery.

Mexico and the US

In May 2009, Mexico implemented a tax rate reduction and funding aimed at small and midsize enterprises in the tourism and transportation industries. Furthermore, it reduced its interbank interest rate and announced a financing plan to inject funds into the economy through institutions (i.e., the National Financial Development Bank) to support small and medium enterprises. The Mexican government revived its economy by introducing rules/regulations to facilitate mergers and acquisitions that promoted the development of the southeast economy within Mexico.

During the H1N1 outbreak, the US economy faced a slowdown in an unstable policy environment following the 2008 financial crisis. The country passed a law to support economic recovery and encourage reinvestment. The Federal Reserve cut interest rates to save financial institutions and enterprises on the brink of bankruptcy and help families with excessive debt. On July 12, 2009, the U.S. Department of Health announced the allocation of an additional USD 1 billion to fight A H1N1 influenza. Footnote 6 Despite reductions in US–Mexico air routes, trade between the two countries continued.

In March 2011, Japan launched a post-disaster recovery and reconstruction program, and the Reconstruction Agency was established in 2012. The timeframe included the Intensive Reconstruction Period (2011–2015), with USD 250 billion allocated, and the Reconstruction and Revitalization Period (2016–2020), with USD 65 billion. Japan also established a comprehensive environmental monitoring system. Footnote 7 To accelerate the resumption of normal business operations, the government supported the establishment of temporary stores, increased investment in support funds, and repaired damaged buildings.

Special financial support to reduce enterprises’ burden included establishing a Japanese financial company specialized in recovery and loans intended for reconstruction after the earthquake. The interest rate was slashed, and separate loan limits, extended loans, and repayment terms were established. The interest rate was reduced to almost zero for small and midsize enterprises whose office facilities were destroyed during the earthquake, and the government improved its management and financing. Tourism and other affected industries were supported, and entertainment and consumer destinations, such as Tokyo Disneyland, reopened to revitalize the local economy and restore international confidence after the disaster.

West Africa

Guinea, Liberia, and Sierra Leone introduced short-term response policies to ensure the health systems and economic sectors’ timely recovery. The Guinean government formulated a USD 2-billion post-Ebola recovery plan, with 63% allocated to improving nutrition, health, education, and children’s services and promoting socioeconomic recovery [ 43 ]. It emphasized that the disease’s spread was enhanced by poverty and illiteracy, while noting that the epidemic presented an opportunity to strengthen the country’s economic, social, and institutional resilience. Sierra Leone prioritized the implementation of universal health insurance, whereas Liberia focused on improving post-outbreak areas such as health staffing, infrastructure, monitoring, and response.

The outbreak of a large-scale epidemic in Africa attracted attention from the international community. The United Nations, World Bank, IMF, and US launched a series of epidemic prevention and financial support policies to assist the West African countries in combatting the outbreak. These policies included initial funding of USD 200 million from the US National Institutes of Health to foster cooperation between academic institutions in the US, Liberia, and Sierra Leone on virus research, including vaccine development and new testing and treatment methods. The World Bank approved a USD 110 million IDA assistance to help West Africa establish and expand disease surveillance systems [ 43 ].

South Korea

In June 2015, the central bank of South Korea cut its interest rate to 1.5% [ 58 ], issued special financing support, and promoted structural reforms in public utilities, finance, education, and labor sectors. The Korean government provided special insurance for visitors to Korea, covering all medical and MERS-related expenses. The government concurrently introduced supportive policies to reduce consumption taxes on automobiles and large household appliances, offering discounts and organizing shopping festivals. Commercial enterprises offered discounts on commodities and services to stimulate domestic demand and launched the Black Friday Shopping Festival. To accommodate the peak summer vacation from late July to early August and absorb the demand for popular products flowing overseas during the epidemic, Korean enterprises actively supported tourism recovery and extended the discount season from winter until August to attract consumers.

The main measures of trade recovery

After the GHEs, the affected governments implemented internal countermeasures to recover. Korean commercial enterprises also participated in the recovery process through marketing measures. Conversely, although the three West African countries implemented internal trade recovery measures, given their economic development and medical infrastructure level, they required additional support from the international community to recover.

Emphasis on trade recovery

Most countries strengthened entry-exit control and ensured strict isolation to prevent an epidemic. International flights were reduced, with some countries isolated. Mexico and the US, however, maintained trade ties during the H1N1 influenza pandemic. After controlling the pandemic, the countries used fiscal and monetary policies to manage the affected tourism and agricultural trade. The Japanese government’s trade recovery was based on environmental monitoring measures. When the affected region’s government officials pushed for and promoted marketing measures, it mitigated the nuclear accident’s adverse psychological effects on foreign consumers, thereby advancing the recovery of agricultural exports. The three West African countries’ trade recovery measures are nested in a broader socioeconomic promotion plan. Countries with adequate trade recovery considered the epidemic would opportunistically promote domestic economic development and improve medical facilities with the international community’s support. South Korean commercial enterprises focused on stimulating local demand.

Trade recovery measures differ between developed and emerging economies

During the MERS outbreak, South Korea implemented an economic stimulus plan to assist domestic enterprises. Developed economies, such as the US and Japan, also developed support measures for small and midsize enterprises. During the Ebola epidemic, however, West African countries could not provide such resources, and international organizations, such as the World Bank, United Nations Children’s Fund, and WHO, came to their rescue (Table  2 ).

Comparing the cases with the theoretical framework

This study enhances the theoretical framework using case study evidence. Combining the theoretical framework in " Results " section , trade recovery measures in the time dimension of these countries require further clarification, especially when the event was under control and during the trade recovery stage. In the time dimension (Fig.  3 ), after the GHE was under control (especially after the warning and outbreak), the countries embarked on the process of trade recovery (including early, middle, and late stages).

Implementing the foundations of trade recovery can enhance governments’ timely responses to GHEs. Robust trade recovery infrastructures significantly improve response times during health crises [ 13 , 37 , 50 ]. Trade recovery measures differ based on cities, regions, and domestic countries, with urban centers often rebounding more rapidly owing to better resource allocation [ 59 , 60 ]. International cooperation is critical for trade recovery, especially for emerging countries, as exemplified by the joint efforts during the 2014 Ebola crisis that facilitated regional trade resumption [ 61 ]. The trade recovery measures of developed countries are more comprehensive than those of emerging countries, helping to shorten their recovery time, with the OECD highlighting the correlation between recovery measures and reduced economic downtime [ 62 ]. Countries can classify and enrich trade recovery measures by applying the time–space-subject three-dimensional framework analyzed earlier and establishing a countermeasure repository (see Table 3  in " Comparative case study on trade recovery measures after GHEs " section) to recover from GHEs

Each GHE revealed areas for improvement in trade recovery measures. The responses to the nuclear leakage accident and the H1N1 influenza epidemic suffered from a lack of timely action and resource allocation [ 53 , 59 ]. Management of the MERS and Ebola outbreaks has been criticized for insufficient coordination and resource deployment [ 34 ]. The outbreak of GHEs has exposed the weaknesses in global governance, manifesting in uncoordinated public health and economic systems, and the failure to manage these events to achieve a better balance among health, economic, and trade shocks. This lack of synergy exacerbates the severity of health, economic, and trade shocks during these crises. Establishing joint committees of the WHO, WTO, and potentially other international organizations, such as the International Monetary Fund and United Nations, could provide a comprehensive approach to managing these conflicts. The effectiveness of such collaborative efforts has been documented in the joint WHO–WTO response to the SARS and H1N1 outbreak, which enhanced global preparedness and response capabilities [ 63 ]. Such joint committees could create a real-time data repository for cross-border information sharing, outline a tiered protocol for trade actions, manage a dedicated emergency fund, and conduct bi-annual stress tests. This would not only inform member nations’ preparedness for future GHEs as recommended by the WHO, WIPO, and WTO but also renew their commitment to supporting integrated solutions for global health challenges [ 64 ].

Moreover, implementing trade recovery measures in countries affected by GHEs will generate short-term impacts on trade and investment with a delayed effect. According to the Center on Budget and Policy Priorities [ 65 ], recovery measures typically result in initial disruptions that are offset by longer-term gains in efficiency and market access. During GHEs, the successive implementation of trade recovery measures influences current economic activities; however, these measures have a delayed and long-term impact. UNCTAD [ 66 ] revealed that the full benefits of the trade recovery measures from the pandemic were not realized until several years post-crisis, underscoring the need for patient capital and sustained policy support. Improving the effects of trade recovery measures requires evaluating the implementation effects of the affected country’s measures in response to GHEs, as demonstrated by the World Bank’s analysis of response strategies during the 2014–2015 Ebola outbreak. This provides crucial insights into the effectiveness of regional trade policies [ 61 ].

The following countermeasure repository clarifying the time–space-subject dimensions is chosen for countries experiencing GHEs (Table 3 ). Measures in the time dimension are differentiated in the short, medium, and long terms. Measures in the space dimension strengthen the choices of different geographic areas in the various affected levels (the degree to which an area has been affected by GHEs). The subject dimension highlights the heterogeneity of measures at the international, regional, national, industrial, and consumer levels. Countries experiencing a GHE can choose measures from this repository to address their specific needs.

Early stage of trade recovery

Countries should implement short-term policies with an open, transparent, and timely response. These policies should include the following.

Adopting short-term fiscal and monetary policies

Short-term policies were the primary measures employed by all four countries during the early stages of trade recovery. The availability of open and transparent information helps the government evaluate and control the situation. Timely isolation is significant in controlling an epidemic’s spread, thereby reducing infection and mortality rates. Short-term fiscal spending, income reduction, and credit policies (e.g., tax and reduction of property and insurance fees) can target the most impacted industries. The business cycle prefers a moderately loose monetary policy. Short-term policies should minimize the socioeconomic burden of people affected [ 67 ]. For emerging countries, countermeasures to reduce the economic burden are essential for mitigating the adverse effects rather than increasing employment and economic output [ 33 ].

Implementing trade policies to maintain open trade

During a GHE, neighboring countries and major trading partners fear the epidemic spread through trade channels, triggering trade bans and interruptions. Flight controls and border closures affect countries beyond those implementing the measures [ 46 ]. During the Ebola outbreak, West African countries closed their borders, disrupting regional trade and threatening the essential supply and livelihood of the host countries [ 30 , 31 ]. The affected countries and trading partners should keep trade as open as possible to secure an adequate supply of necessities. During the early stages of trade recovery, reducing trade costs (government-imposed trade costs such as tariffs and quotas) can help protect trade and economic openness. At the international, national, and industrial levels, timely trade policies should be implemented to avoid trade bans and actively respond to technical barriers to trade (TBTs) imposed by other countries. At the national level, affected countries must promptly reduce their short-term trade barriers. Footnote 8 The increased trade barriers during the COVID-19 pandemic further destroyed trade (i.e., the global food system) [ 68 ].

Middle and later stages of trade recovery

Rapid control of spreading diseases or radioactive substances poses challenges and leads to long-term lag effect on national trade recovery. While quantifying total trade losses from epidemics and nuclear radiation remains difficult, prioritizing national trade recovery is essential for normalizing trade. Measures taken during GHEs should be adjusted based on the overall trade recovery progress to prevent trade friction and expedite the normalization of trade and economic policies. The policy package aimed at ensuring timely trade normalization should incorporate the following three elements.

Highlighting macroeconomy-tolerant fiscal and monetary policies

The GHEs significantly disrupted total consumer spending during the middle and later periods of trade recovery. Policy interventions to maintain economic growth are therefore preferable. During GHEs, governments must coordinate their efforts to manage working time arrangements and determine the optimal level of public debt based on production technology and disease characteristics to effectively implement fiscal policy [ 69 ]. Simultaneously, medium- and long-term structural policies must be launched while establishing epidemic risk assessment tools. Measures include improving monitoring systems and raising public awareness of prevention and control measures. Pharmaceutical companies should be incentivized to develop new antiviral drugs and vaccines and enhance their production capacity. Footnote 9 Measures to increase medical reserves, such as adopting advanced technologies and medical infrastructure, should be pursued.

Supporting key industries and enterprises at medium and micro levels

Efforts include implementing targeted policies for industries significantly affected by the GHE to protect the interests of small and midsize enterprises, particularly those engaged in import and export businesses directly affected. Measures should target preferential policies and subsidies for small and midsize enterprises and prevent unemployment. Enterprises should continue to pay wages and facilitate employee benefit claims despite economic uncertainty. Global manufacturers and retailers can improve e-commerce for shopping channels, develop trust and confidence among e-commerce participants, and promote compatibility with international norms [ 70 ].

Attracting investment

GHEs can reduce or cause a withdrawal of foreign direct investment from affected countries. When the health event is controlled, implementing tax relief can help reduce losses promptly and promote major investing countries’ and trading partners’ investment plans. For example, foreign investment was withdrawn or withheld during West Africa’s Ebola outbreak. Even after the epidemic was under control, the withdrawn foreign capital slowed the economic recovery of the most affected countries. Weak investment was the primary restraint on trade recovery, accounting for approximately 80% of the decline in goods trade between 2012 and 2016 and between 2003 and 2007 [ 71 ]. Countries should actively maintain a stable financial system and encourage foreign direct investment inflows during the middle and later recovery periods.

Conclusions

This study investigated the impact of GHEs and designed countermeasures to address trade recovery based on theoretical and case analysis. The following conclusions are drawn. First, the unexpected and unique nature of GHEs complicates trade recovery. There were differences in the types of GHEs, their transmission times, and diffusion regions across the four health events. Regardless of the home country’s coping strategy or the experience gained from these events, the trade recovery capability of these countries warrants improvement. Second, the trade recovery measures for the four GHEs were heterogeneous in their focus and effectiveness among developed and emerging economies. Fiscal and monetary policies were more commonly used, followed by recovery measures for specific regions and industries. Enterprises must actively stimulate demand (i.e., marketing, e-commerce). Third, trade recovery measures should be implemented from a spatiotemporal perspective, considering specific subject levels. Short-term policies were the primary focus for affected countries during the early stages of trade recovery. Medium- and long-term policies were crucial for ensuring open trade and trade normalization in the middle and late stages.

The results indicate that trade recovery measures should operate in the space–time-subject dimension. Expedient short-term policies should be adopted during the early stages of recovery (i.e., tax relief and trade subsidies) to stabilize the affected economies rapidly. As recovery progresses, medium- and long-term financial, monetary, and trade policies (i.e., bilateral trade agreements and currency stabilization) should be preferred in the middle and later stages to sustain and bolster economic recovery. Designing trade recovery policies at the international, national, industrial, enterprise, and consumer levels should shift from emergency actions to comprehensive, reserve-oriented, and enduring-effects measures. These policies should address needs at different levels, such as permanent trade corridors to facilitate uninterrupted trade flows and consumer loyalty programs in sustaining market demands.

Our study acknowledges the comprehensive WTO trade measures during the COVID-19 pandemic, which documented diverse practices of trade facilitation and restriction across member states. According to the WTO’s report [ 72 ] and further detailed trade policy discussions [ 73 ], these measures significantly influenced the economic landscape globally, highlighting the need for adaptable tailor-made trade policies to specific country contexts. Building on these findings, we suggest that future trade recovery strategies should leverage both the resilience measures and lessons learned during the pandemic. Specifically, effective temporary trade measures identified by the WTO can serve as models for swift deployment in future global health emergencies, aiming to minimize disruptions to trade flows.

Limitations and future research

This study proposed that trade recovery countermeasures designed for countries with GHEs should distinguish between spatiotemporal dimensions and specific subject levels. Different trade recovery countermeasures inevitably produce overlapping effects (i.e., fiscal and easy monetary policies can promote trade recovery). However, this study did not fully explore the interactive or cumulative impacts of these overlapping countermeasures, leaving room for determining the most effective policy combinations. Further research is needed on the superimposed effects of trade promotion and combined policies. For example, clarifying these mechanisms requires analyzing the channels and results of various trade recovery countermeasures affecting trade recovery, collecting quarterly, monthly, even daily, and real-time data from countries with GHEs, and applying difference-in-difference, breakpoint regression models, as well as propensity score matching to identify the mechanism and countermeasures’ effects. This approach can provide insight into the overlapping effects of multiple trade recovery policies.

Availability of data and materials

The data that support the findings of this study are available from the corresponding author upon reasonable request.

GHEs affect the long-run evolution of the economy. This study assumes that countries experiencing GHEs will enter a new stage of development and show a long-run economic evolution.

The economy evolves endogenously. A GHE always affects/changes the economy, altering its evolutionary path. Therefore, countries affected by GHEs try to resume or recover trade by implementing trade recovery measures.

This causation runs both ways.

This research focuses on the impact of GHEs on trade; however, since forever, the relationship has run both ways.

The US Food and Drug Administration response to the Fukushima Daiichi nuclear power facility incident (May 14, 2023). https://www.fda.gov/news-events/public-health-focus/fda-response-fukushima-daiichi-nuclear-power-facility-incident Scholars also focus on the motivations/interests of the US agricultural community before and after the event—for example, the nuclear event was just an excuse to prohibit imports. This is also an interesting future topic.

US $1 billion to fight against influenza A (H1N1), China News Report , October 10, 2022. https://news.ifeng.com/c/7fYidCErT3J

Efforts toward reconstruction of Tohoku, Reconstruction Agency of Japan, May 14, 2023. https://www.reconstruction.go.jp/english/index.html

Facing COVID-19, the affected countries did the opposite. These activities clearly exposed the weakness of the current recovery measures taken by the countries. Enhancing trade barriers are emergency-oriented measures taken by countries facing multiple uncertainties, while reducing trade barriers are reserve-oriented and enduring-effect measures that benefit countries affected by GHEs.

Incentivizing pharmaceutical companies is challenging while recognizing their right to make a profit and the public’s opposing rights and interests. Governments need to play a role in avoiding their monopoly on meeting private interests while encouraging their progress, innovation, and social responsibility.

Abbreviations

• Global health events

Middle East respiratory syndrome

World Health Organization

World Trade Organization

United States

Artificial intelligence

Technical barriers to trade

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Post-funded project of the National Social Science Fund of China, “Research on academic frontier theory and policy of the economics of standards” [Grant No. 21FJLB039]; Soft Science Special Project of Gansu Basic Research Plan, “Research on promoting trade development between Gansu and countries along the Silk Road through harmonization of standards” [Grant No. 23JRZA385]; The China Association of Trade in Services project, “Research on the Impact of Digital Trade on Manufacturing Production Efficiency”[Grant No. FWMYKT-202429].

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Yang, L. From isolation to revival: trade recovery amid global health crises. Global Health 20 , 38 (2024). https://doi.org/10.1186/s12992-024-01048-6

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The development of a hydrogeophysical model as a tool for groundwater risk assessment: a case study in the critical region of the Toluca Valley Aquifer, Mexico

• Original Article
• Published: 14 May 2024
• Volume 83 , article number  333 , ( 2024 )

Cite this article

• Neri Díaz-Espíritu 1 ,
• José L. Expósito-Castillo 1 ,
• María V. Esteller-Alberich 1 &
• Miguel Á. Gómez-Albores 1  

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Multidisciplinary information such as geophysical, hydraulic, geological, and hydrogeological information combined with GIS can be a powerful tool to better understand aquifers. The aim of this paper is to assess groundwater pollution risk through regional hydrogeological and local hydrogeophysical models built from multidisciplinary information and geophysical well logs. Once the regional model of the Toluca Valley Aquifer (Mexico) was built, the critical area (CA) of the aquifer was identified through features such as fractures and faults, pollution sources, subsidence, groundwater table depletion, and well density, which were transformed into GIS with multicriteria analysis. With the CA a local hydrogeophysical model was set to extract lithological information and compute the intrinsic vulnerability (IV) through the Dar Zarrouk parameters according to the AVI-Fr method which considers the influence of fractures and faults as preferential paths for pollutants. On the other hand, the potential harmful load (PHL) of the different pollution sources was estimated with the POSH method. Finally, with the relation between the IV and PHL, risk pollution map could be made. The results of this study show that different areas are exposed to pollution risk due to their proximity to fractures, oil and gas subsurface infrastructure and high pumping ratios and their relationships. The available geophysical data and multidisciplinary information were powerful tools for identifying the critical area of the TVA and proposing actions to mitigate or control excessive withdrawals for sustainable management.

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Neri Díaz Espíritu would like to thank CONAHCYT for the scholarship received during the master´s degree period and a special thanks to the reviewers for their time.

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NDE: principal writer, did the methodology and prepared the figures. JLEC and MAGA wrote the multi-criteria analysis section. MVEA wrote and provided references. All authors reviewed the manuscript.

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Díaz-Espíritu, N., Expósito-Castillo, J.L., Esteller-Alberich, M.V. et al. The development of a hydrogeophysical model as a tool for groundwater risk assessment: a case study in the critical region of the Toluca Valley Aquifer, Mexico. Environ Earth Sci 83 , 333 (2024). https://doi.org/10.1007/s12665-024-11602-5

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DOI : https://doi.org/10.1007/s12665-024-11602-5

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May 15, 2024 | Sue Poremba

The 2024 RSA Conference can be summed up in two letters: AI.

AI was everywhere. It was the main topic of more than 130 sessions. Almost every company with a booth in the Expo Hall advertised AI as a component in their solution. Even casual conversations with colleagues over lunch turned to AI.

In 2023, generative AI was all the rage since it was so new and there were so many questions around its security. This year, it appeared that the goal was simply to talk about AI as much as possible because people want to hear about it, but they just aren’t sure where AI fits into their security outlook. Is it a threat? Is it a tool? And what type of AI is being discussed? Unfortunately, AI has become shorthand for ChatGPT or CoPilot, and if you wanted to learn more about predictive AI/ML solutions, you had to look beyond the session title. However, one topic around AI began to pick up steam as the conference went on…

The Looming Threat of Shadow AI

A growing number of CISOs and cybersecurity experts are concerned about shadow AI and the threat of insider risk it will bring. A recent study conducted by ISACA found that 35% of respondents said that AI increases their productivity, so they want to be able to use the technology in the workplace, yet only 42% of companies are allowing their employees to use generative AI tools. Meanwhile, a recent report by DTEX shows 92% of organizations identify internal use of AI as a key security concern.

It isn’t just that employees are using the technology to find answers or help them solve problems. Many are using it as a short cut, and are not only doing so without permission, but they are feeding sensitive company or customer data into the AI algorithm. For example, at one company, members of the board of directors wanted to generate a summary of corporate objectives and procedures. They scanned books and binders filled with company information into an AI tool and then asked the tool to write the summary.

The summary was perfect, just what the board members wanted, but now information about that company’s financial health, its intellectual property and other sensitive information was available to anyone.

Without policies around who can use AI and how it can be used, and without adding ethical parameters to generative AI use, organizations are opening themselves up to levels of insider risk that haven’t been seen before.

Lack of Data Governance

A question that frequently came up in both conversations and sessions at RSA Conference was how to best deal with the data within LLMs, especially the data that your company doesn’t own. The threat of shadow AI has accelerated the concern around the amount of data generated within a company, what the data is, and who has control over it.

Government and industry regulations are increasing but organizations struggle to manage their data to be compliant. Classification of data makes a difference in data governance, but too many companies are unprepared or unable to handle basic hygiene around data.

While cybersecurity professionals in attendance at RSA Conference bemoaned the struggles around data governance, most predicted that addressing the problem will become a priority over the next 12 months, and that by next year’s event, we’ll see new regulations around data and AI, as well as greater governance over third-party data.

Budget Woes

AI/ML tools can help organizations classify and manage their data, and even accelerate investigations to detect or deter insider risks from escalating into a data breach. However, one of the most startling takeaways from RSA Conference was the minimal budgets that security teams are working with.

Security budgets are being slashed by up to a third of the previous year’s funding. And the cost dedicated specifically to insider risk management is disproportionately low, according to the 2023 Ponemon Cost of Insider Risks Global Report . While C-suites may say they need to address the cyber skills gap and onboard experienced cyber professionals, CISOs find it difficult to hire good people who can hit the ground running because they aren’t allocated appropriate pay and compensation budgets. Turning to MSPs to make up for the slack of inhouse staff can only go so far if budgets are already tight and decision makers don’t see the need for security spending.

Another spending-related point to take into consideration is where the budget cuts will be deployed. A number of CISOs expressed concern that security awareness training isn’t keeping up with the changing threat environment and the more prevalent role of generative AI risks. But security awareness training may end up being cut if there are other high priorities in the security office. At a time when highly specialized training is needed to address more sophisticated phishing attacks and an increase in misinformation campaigns, companies are taking a pause from training or using inexpensive older models.

Blurred Lines: The Rise of Blended Attacks 

Another key takeaway from RSA was the shift in perception of cyber-attacks from being all internal or external to being a combination of both. Increasingly, adversaries are blending traditional external Advanced Persistent Threats with insider-driven exploitation, such as social engineering, to access and steal data and IP. DTEX’s Blurred Lines session hosted by Mohan Koo and featuring Kevin Mandia (Mandiant) and Brad Maiorino (RTX) revealed new insights into the threat landscape: In 2023, there were 97 zero days found in the wild – the second highest ever. The good news is that SOC teams are getting better at detecting intrusions faster. The bad news is that adversaries are now targeting insiders more aggressively than ever before. Why? Because for many adversaries, exploiting an insider is easier and cheaper – PLUS they can often get away with it .

The panel also raised the topic of roles and accountability within an insider risk program. While the SOC has traditionally been charged with handling external threats, it’s a different story when it comes to insider risks: Where the SOC should ultimately manage the digital data, legal and HR should ultimately handle the investigation. As a fundamentally human challenge, this makes sense. As adversaries increasingly socially engineer insiders , organizations will be under pressure to develop best practices to manage AI and insider risk early in the game.

These weren’t the only topics getting attention at RSA Conference this year. There is also an uptick in vendor fatigue, concerns about CISO burnout, and worries that if there is too much focus on AI that other problems will get pushed aside. However, one common theme (besides artificial intelligence) is that if organizations slack on areas like data governance or budgets, or if they don’t build policies around generative AI use, risky insider behaviors will go unchecked, leading to a rise in insider driven incidents.

With the cost and frequency of insider-initiated security incidents at an all-time high, investing in a dedicated insider risk program has never been more important. To learn more about the evolving threat landscape and how to navigate security threats from the inside out, download the 2024 Insider Risk Investigations Report.  

Download 2024 Insider Risk Investigations Report