Risk Analytics: A Quick Guide
Michael Seymour |
 06/20/22 |
7 min read

Risk Analytics: A Quick Guide

Risk analytics helps brands determine the magnitude of underlying uncertainties they face. These uncertainties could be economic, regulatory, financial, technological, and political, and they threaten the business operations, placing the entire company at risk. Let’s learn more about these risks and how to head them off.

Nearly every business move comes with a certain level of risk. It makes sense, potential rewards are often accompanied by risks. However, too much risk can lead to failure. Risk analytics evaluates these risks and minimizes, sometimes even eliminates, them.

The Growth of Risk Analytics

Risk is a growing concern for business management across the world. Data collected over a period of just one month reveals a vast ongoing conversation about risk. For instance, we discovered that many businesses are discussing risk prioritization with more than 160k mentions of the phrase “prioritizing risk.” And within the same period, “competitive risks” was mentioned 60.4k times, “risk assessment” 52k times, and “risk analysis” 46.5k times. Even the least mentioned phrase, “risk factors,” had almost 20k mentions.

It is evident that businesses are cognizant of the state of the world in which they are operating – that it is fraught with risk! In fact, this was the original idea that led to the coining of the phrase “risk intelligence.”

At the time, the phrase was a way to describe the systems that gave decision-makers a deeper insight into their world – i.e. their company’s world. However, with the advent of the internet, risk intelligence encompassed the world beyond any single business. It made it easier for business leaders to look over the walls of their organization at what the market was doing, making risk intelligence a competitive factor. And the internet midwifed the birth of many more risks than had been around before, making risk intelligence that much more critical to capture.

Now, more than two decades into the 21st century, the ubiquity of the internet has given modern organizations all the raw material they need and a superpower in their ability to translate risk intelligence into fodder for growth. With the current advances in computing power, new techniques, and better technologies, businesses can extract more actionable insights from their ever-growing data piles. Further, since many aspects of the task are left to automation rather than manual input, the process is quick and accurate.

Modern risk intelligence doesn’t just describe systems though. It is an important addition to risk analytics and processes that requires embedding risk management protocols throughout the organization. This makes having robust risk analytics matter more than ever.

dashboard-for-risk-analytics

Why Risk Analytics Matters

Businesses that are embracing the shifts in risk analytics are exploiting all sources of data available to them. Internally, they are integrating more of their data into the systems including employee, transactional, and operational data. Externally, they are looking at conventional structured sources of market information such as industry reports. But they don’t stop at that – unconventional sources such as government statistics are an important raw material for risk analytics. Most recently, new sources of unstructured information have been a gold-mine. These include customer review sites, discussion forums, and social media.

By combining internal and external data, these businesses can extract insights on an unprecedented level. This is made possible due to the improvements in the risk analytics process, including advanced AI techniques that encompass machine learning and natural language processing.

These improvements have made it possible to increasingly automate previously manual aspects of risk analytics. And it’s done with a much higher degree of accuracy as AI does not have any predisposition toward a particular outcome, thus eliminating any unintentional user bias.

And benefits in the reach and accuracy of risk analytics have a direct impact on profitability, as risk analytics allows businesses to reduce costs associated with unexpected adverse events. The predictive capabilities it offers are exceptional.

Further, having a clear understanding of the state of the market and communicating this to stakeholders improves their confidence in the organization. It offers a level of transparency and allows companies to better managing investor expectations.

There are still many businesses that are yet to realize the benefits of risk analytics though. Top reasons for this include:

  • using outdated technology
  • inability to turn unstructured data into structured data with tools they’ve explored
  • lack of adequately skilled people to oversee the systems
  • myopic leadership

These challenges can seem unsolvable for some; but for others it’s just a matter of time and changing the way they think about risk analytics. We have offered some pointers on “What to Do” below.

Who Needs Risk Analytics?

As every business faces certain risks, every business needs risk analytics. With that in mind, let us look at some of the industries where risk analytics have been an asset to businesses so far:

1. Finance

The financial services sector – including banking and insurance – is highly regulated and monitored. Those who do not have risk analytics miss out on the benefits and endanger other aspects of the business. As an illustration, a 2021 report by LexisNexis shows a projected increase in the cost of financial crime compliance by up to 58% mainly due to growing cyber risk as a result of COVID-19.

2. Manufacturing

The manufacturing industry faces many risks that can best be understood through risk analytics. Additionally, it is a highly competitive space where risk intelligence can easily offer a competing edge. Read the case study of how NetBase Quid helped a client better understand its competitor by looking at a variety of information surrounding the competitor including news coverage, affiliated companies, and internal data such as job postings and earnings transcripts.

3. Healthcare

In the healthcare sector, risk analytics can be the difference between life and death as it helps determine and ensure patient safety. It can also mean life or death for organizations depending on how they determine risks to their own profitability. Predictive analytics has been shown to reduce readmission, a cost-heavy aspect of healthcare, by 40%.

4. Government

Government service delivery uses risk analytics to predict and prevent risks. Other areas where this is important include in forecasting the impact of natural phenomena, managing the border security, and policy control. There is a recent case study of how risk analytics was used to improve the efficiency and effectiveness of identifying duplicate payments, leading to better allocation of public resources.

5. Telecommunications

A stable and reliable telecommunications sector is key to the growth of any modern economy. Internally, the industry is highly competitive which leads to reduced revenues. At the same time, the complexity of the business means the modern telco has the same risks associated with technology companies including data protection issues, fraud, and other cyber-crimes. Telecom companies are turning to risk analytics to help reduce the severity of such uncertainties

6. Retail

Retailers have many incentives to adopt risk analytics. Online retailers, in particular, have access to large amounts of data that can help them predict crises, avert reputational damage, and prevent fraud. Recent research shows that the most common types of fraud in retail are return fraud, fake accounts, gift card fraud, and synthetic identity fraud. These are risks that can be anticipated and minimized through efficient risk analytics. By feeding them large amounts of data, risk analytics systems can autonomously identify and flag suspicious activity, avoiding the losses in revenue and reputation that these risks carry.

How to Implement Risk Analytics in Your Organization

If you have considered the benefits of risk analytics, you may want to implement it in your organization. But how do you go about the process? First, start by recognizing the different shades of risk across departments. Each one will have a unique conception of risk and different ways to determine it. You don’t want each going its own way as this would only result in confusion and siloed intel. Therefore, second, realize that you need to manage risk for the whole organization from a single point. Third, don’t forget that the goal is to minimize risk.

That said, here are six tips on how to implement risk analytics:

1. Create a point of reference

The first step in implementing risk analytics in your business is to ensure that everyone, regardless of their department, is aware of all the potential and known risks facing the organization. Create a thorough list of these risks and make it easily accessible to all employees and invite them to share what they come across in their work. This list of risks should answer questions such as:

  • What are the potential and known risks?
  • What triggers these events?
  • What happens when they occur?

2. Review your data sources

Risk analytics requires data. More than that, it requires accurate up-to-date data. This is why you need to make sure that each data source that you include in your system adds to the effort. You don’t want to collect data for the sake of accumulating it. And you also want to make sure you’re capturing everything you need!

data-sources

3. Integrate your data sources

Next, you want all your data in one place. You need a tool that can pull together and consolidate your data sources. Even better is a platform that connects with those sources for continuous monitoring and collecting of relevant data. Also, this system should be relied on for tracking and reporting risks, even sending alerts when necessary. Check out Intelligence Connector for a best-in-class standard to compare other options against.

4. Leverage data visualization

Data presentation makes a big difference in how insights are processed by people. Your risk analytics platform should be able to use visualization methods that simplify the interpretation of both unprocessed and processed data.

5. Share insights

We have alluded that the system needs to be democratized but let us reiterate and say it explicitly: You need to share insights across the organization. This not only makes everyone feel included in the effort but also spreads around the responsibility of adding to its efficiency.

6. Scale up

Once the idea and utility of risk analytics has been entrenched in the business, it’s time to expand the operation applying what you have learned and taking advantage of the increasing amount of data as well as new advances in the field.

Every business conducts risk analysis at some level. Unfortunately for many, that level is intuition, which is not enough to understand the full scope of the threat. With advanced risk analytics, you can move your risk-based decision-making from the instinct stage to the intelligence level. Reach out for a demo today to see how NetBase Quid can help you make the transition.

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