How should CEOs in Central and Eastern Europe rethink risk?

Mikołaj Woźniak, Risk and Regulatory Leader for PwC Central and Eastern Europe, highlights three points that can help CEOs in Central and Eastern Europe rethink their risk landscape and chart a course of action.

The world has changed dramatically in the last three years. The Covid-19 pandemic has caused disturbances in health, economics and markets with strong impacts on the labour market and supply chains.

The current volatile geopolitical environment, including Russia’s war against Ukraine, has further exacerbated supply constraints and economic slowdown. Cyber attacks are more frequent and more sophisticated – 41 per cent of senior business executives in Central and Eastern Europe say that cyber breaches of their systems have increased since 2020.

What has also changed during this three-year period is the fact that safety and societal issues are now at the forefront of many business decisions. Customers, investors, employees and other stakeholders are laser-focused on ESG, particularly in light of the recent adoption of new ESG reporting requirements by the European Union.

Moreover, the pandemic has highly accelerated the digital transformation, making security everyone’s business. According to PwC’s 2022 Global Risk Survey, 60 per cent of executives believe keeping up with the speed of digital transformation is a significant risk management challenge for their organisation. 

In short, the last three years have changed how we see risk and opportunity.

Leading organisations have used those years to enhance their resilience but also their risk maturity, so they are ready today to seize new opportunities for the future with greater confidence. Those companies that haven’t developed their resilience capabilities yet must catch up quickly now.

Below I present three points that can help them rethink their risk landscape and chart a course of action.

Get a panoramic view and set risk appetite

In becoming more proactive in preparing and adapting to risks, your organisation can become more resilient. But for that, you should have a handle on all of the moving pieces that contribute to strategic, operational, regulatory and technological risk, the impacts they have across your organisation and how each is being controlled. Furthermore, you need to become more forward-looking and consider a wider range of potential threats, no matter how far-fetched they seem.

I also believe organisations should not only rethink their risk tolerance, but also how it is defined and measured against potential opportunities.

Risk appetite is a key tool to help leaders and employees understand where they are able to take more risks in pursuit of their strategy, new opportunities and growth.

Setting a risk appetite supports agility, clarity and alignment throughout the organisation. It is also a key mechanism to remind everyone of the need for care for broader societal considerations as organisations face decisions and risks.

Anticipate risk using data and risk modelling

Data is a key tool in the arsenal to detect changes and warning signals of new threats in the risk landscape and create actionable risk intelligence for them all. I am seeing more and more leaders leveraging internal and external data and new technologies to anticipate risks and to see changes in real time.

Our Global Risk Study confirms that. It shows that 54 per cent of organisations in CEE plan to increase spending on technology to support the detection and monitoring of risks. And according to PwC’s 26th Global Annual CEO Survey, executives in our region plan to invest more in automation, deploy technologies (cloud, AI, etc.) and upskill their workforce in the next 12 months to respond effectively to different challenges, including changes in regulations and supply chains disruptions.

More leaders are also thinking about using risk modelling to make better, more informed decisions. The volume and types of data available now to help quantify risk is unprecedented. Substantially more data is coming into organisations as many more devices, such as IoT sensors, are generating real-time information that can enrich quantification from up and down the value chain.

Yet if organisations are going to make this a part of their DNA, have a panoramic view of risks and look at risk as an opportunity rather than solely mitigation, modelling has to sit close to where decision-making occurs.

The entire C-Suite should be involved in understanding the risk quantification of strategic areas such as M&A, climate or business model change and have an end-to-end view of the far-reaching impact of the risks they own.

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Engage a diverse community of solvers

Risk is a team sport. Leaders must be willing to listen to different voices that can challenge entrenched habits and viewpoints.

Our Global Risk Survey showed organisations in the CEE region are moving in the right direction, yet not as quickly as their global peers. Only 51 per cent of companies in CEE (vs. 70 per cent globally) prioritise diversity in risk teams, making use of alliances to bring diverse expertise and technology to the organisation and enhancing the risk awareness of operational areas more broadly. 

To get the full benefits of a diverse team, companies must also create a culture where people feel included and able to speak up and share their opinions. This year’s CEO Survey suggests some warning signs, as well as areas of improvement and opportunity in this aspect. As many as 43 pr cent of CEE CEOs said leaders in their organisation do not often encourage debate and dissent, while 57 per cent said their leaders did not often tolerate small-scale failures. And 75 per cent said their leaders do not often make independent strategic decisions for their function or division.

Remember, disruption will always exist. But through building resilience, you’ll have a strategic advantage and be better placed to respond to disruption in a seamless, coordinated and efficient manner.

Managing risk is about changing the way we see, shifting our perspective and considering different angles to anticipate and be agile.

Read more here about the key impact areas and how we, at PwC in CEE, shift our perspective to unlock new possibilities.

This article is part of Digital Future of CEE, a regional discussion series, powered by Emerging Europe, Microsoft and PwC.

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