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Contextualising risk within enterprise risk management through the application of systems thinking

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New and emerging risks create growing uncertainty and unpredictability within enterprise risk management. While ISO 31000:2009 is a progressive risk management framework, it is limited in its guidance on how to contextualise complex risks. The application of systems thinking to risk management provides the opportunity to better understand complexity by viewing risk and the consequence of change as part of overall system behaviour. System modelling tools enable organisations to better contextualise their risk landscape. These tools assist organisations to identify vulnerabilities between social and ecological variables in the system within they exist. Determining drivers of change leading to system vulnerabilities can assist in understanding threshold limits of the system, thus enabling the organisation to build system resilience and organisational sustainability.
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Contextualising risk within enterprise risk management through
the application of systems thinking
Lorren K. Haywood
1
Greg G. Forsyth
1
Willem J. de Lange
1
Douglas H. Trotter
1
Published online: 2 February 2017
Springer Science+Business Media New York 2017
Abstract New and emerging risks create growing uncer-
tainty and unpredictability within enterprise risk manage-
ment. While ISO 31000:2009 is a progressive risk
management framework, it is limited in its guidance on
how to contextualise complex risks. The application of
systems thinking to risk management provides the oppor-
tunity to better understand complexity by viewing risk and
the consequence of change as part of overall system
behaviour. System modelling tools enable organisations to
better contextualise their risk landscape. These tools assist
organisations to identify vulnerabilities between social and
ecological variables in the system within they exist.
Determining drivers of change leading to system vulnera-
bilities can assist in understanding threshold limits of the
system, thus enabling the organisation to build system
resilience and organisational sustainability.
Keywords ISO 31000 Systems thinking Complexity
Resilience
1 Introduction
A major challenge for business has always been how to
address unexpected changes in their operating environment
(Linnenluecke and Griffiths 2010; Lalonde and Boiral
2012). Traditionally risk management was based upon the
paradigm of risks being single elements which are not
related to each other (Wolf 2008; Hoyt and Liebenberg
2011; Eckles et al. 2014). With globalisation, the conflu-
ence of the interdependence of shared natural, social and
economic resources has brought about the interconnected-
ness between all risks transcending enterprises, industries
and national borders (Lalonde and Boiral 2012; van der
Vegt et al. 2015). In response, risk management procedures
have evolved to embed risk management into all business
operations by integrating strategic, financial and opera-
tional risk into a single framework (Boatright 2011;
Schiller and Prpich 2014; Bharathy and McShane 2014).
Enterprise Risk Management (ERM) does this by pro-
viding a strategic philosophy to risk management enabling
organisations to make better strategic decisions towards
improving operational efficiency and enhancing their
competitive advantage (Beasley et al. 2005; Hoyt and
Liebenberg 2011; Schiller and Prpich 2014; Bharathy and
McShane 2014). ERM was developed on the foundation
that any event threatening an organisation’s objectives
constitute a risk and that these risks can be compared
(Schiller and Prpich 2014). A systematic assessment of
these risks then may further inform the formulation of an
organisational strategy that addresses short- and long-term
risk to the organisation (Schiller and Prpich 2014). How-
ever, recent studies highlight the ability to identify new and
emerging risks as a factor posing a critical challenge to
business risk management (KPMG 2011; Bromiley et al.
2014). These studies show that organisations are faced with
unprecedented pressure and increased systematic risk due
to climate change, over exploitation of natural resources,
changing social pressures, energy supply volatility and
economic recession which compound the complexity and
diversity of the organisation’s risk landscape (Lalonde and
&Lorren K. Haywood
lhaywood@csir.co.za
1
Natural Resources and the Environment, Council of Scientific
and Industrial Research (CSIR), PO Box 395, Pretoria 0001,
South Africa
123
Environ Syst Decis (2017) 37:230–240
DOI 10.1007/s10669-017-9627-8
Content courtesy of Springer Nature, terms of use apply. Rights reserved.
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