ArticlePublisher preview available

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

DOI:10.1007/s10669-017-9627-8
Authors:
Lorren Haywood at Council for Scientific and Industrial Research, South Africa
Lorren Haywood
Greg G Forsyth
Greg G Forsyth
Greg G Forsyth
  • This person is not on ResearchGate, or hasn't claimed this research yet.
Willem De Lange at Stellenbosch University
Willem De Lange
Douglas H Trotter
Douglas H Trotter
Douglas H Trotter
  • This person is not on ResearchGate, or hasn't claimed this research yet.
Read publisher preview
Download citation
To read the full-text of this research, you can request a copy directly from the authors.

Abstract and Figures

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.
Figures - available from: Environment Systems and Decisions
This content is subject to copyright. Terms and conditions apply.
  • A preview of this full-text is provided by Springer Nature.
  • Learn more
Preview content only
Content available from Environment Systems and Decisions
This content is subject to copyright. Terms and conditions apply.
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.
... From Figure 1, it is apparent that the study of sustainability is considered as relevant and not ly limited to environmental issues but also to the participation and impact generated by anisations. Considering the above ideas, authors such as Bansal and DesJardine [5], Banson et al. ], Van Dyk and Pretorius [16], Fiksel [17]; Haywood et al. [18] and Nikolaou [19], stress the need generate contributions under a comprehensive perspective that seeks short-term interventions and From Figure 1, it is apparent that the study of sustainability is considered as relevant and not only limited to environmental issues but also to the participation and impact generated by organisations. Considering the above ideas, authors such as Bansal and DesJardine [5], Banson et al. [15], Van Dyk and Pretorius [16], Fiksel [17]; Haywood et al. [18] and Nikolaou [19], stress the need to generate contributions under a comprehensive perspective that seeks short-term interventions and long-term improvements. ...
... Considering the above ideas, authors such as Bansal and DesJardine [5], Banson et al. ], Van Dyk and Pretorius [16], Fiksel [17]; Haywood et al. [18] and Nikolaou [19], stress the need generate contributions under a comprehensive perspective that seeks short-term interventions and From Figure 1, it is apparent that the study of sustainability is considered as relevant and not only limited to environmental issues but also to the participation and impact generated by organisations. Considering the above ideas, authors such as Bansal and DesJardine [5], Banson et al. [15], Van Dyk and Pretorius [16], Fiksel [17]; Haywood et al. [18] and Nikolaou [19], stress the need to generate contributions under a comprehensive perspective that seeks short-term interventions and long-term improvements. Under this guidance, some contributions explore the application of systemic tools to reinforce the ability to meet their future needs. ...
... On this, Nikolaou [19] states that any organisation that does not adapt, at least, aspects such as costs, operations, management, and even reputation, faces the risk of disappearing in the face of problems related to sustainability. In this line of ideas, Haywood et al. [18] converge in mentioning that moving towards sustainability, demands the coherent relationship of multiple actors and regulatory mechanisms that support change, partially or in the whole system. ...
Systems Thinking Approach to Sustainable Performance in RAMSAR Sites
Article
Full-text available
  • Nov 2019
This article explores and validates the integrated use of the viable system model (VSM) and the partial least squares path modeling (PLS-PM) approach to assess the sustainable management of RAMSAR sites carrying out economic activities. This work adopts a systems-thinking approach integrating systemic methodologies in three phases: (1) the VSM was first used to develop a conceptual model of the organisational problem; (2) PLS-PM was used to propose a construct to outline a solution, as well as to statistically validate the relationships proposed in the conceptual model; finally, (3) through the VSM, the relationships between actors were rethought in order to promote sustainable performance. The results obtained suggest that the joint use of VSM and PLS-PM is an effective approach that aids in the identification of relational and structural pathologies affecting the observed RAMSAR systems. It also proved useful to suggest that relationships can lead to the sustainable performance of the sites under study. It should be noted that the framework of systemic tools is constrained in its application to the organisational domain: assessing two RAMSAR areas in Mexico. Methodologically, this is the first application of the integrated use of VSM and PLS-PM to analyse the management and viability/sustainability of RAMSAR areas from an organisational perspective, opening a new avenue for the analysis and optimisation of management of such areas. This study provides tools to support actors and academics related to RAMSAR sites and opens up a discussion on how to rethink the organisational interactions in order to improve RAMSAR sites’ adaptive capabilities.
... McCurdy and Travis (2017) developed a method to examine the effects of different climate change adaptation strategies to the cost efficiency and service level of drainage infrastructure. Haywood et al. (2017), in a conceptual paper, explore the relationships between enterprise risk management and systems thinking and identify potentials for tools from the systems modeling domain which can be applied for effective risk management. ...
Preview of the June issue featuring literature reviews of MCDA and articles authored by students
Article
  • May 2017
Putting Risk Management into the Corporate Sustainability Context
Article
  • Oct 2021
Purpose This research investigates what is driving corporate sustainability within South African organisations and to what extent these drivers intersect with risk management. This is important as new and emerging business risks are proving to be directly linked to sustainability issues having implication on long-term organisational performance. This implies that sustainability and risk should not be mutually exclusive. Design/methodology/approach By means of semi-structured interviews, sustainability managers of 11 South African organisations were engaged to gain insight relating to the immediate sustainability issues, risk landscape and the possible intersection between these issues within their organisations. Questions posed were around drivers of sustainability, risks to an organisation, changes in risks, relationship between sustainability and risk. By means of thematic analysis key issues emerging from the responses of the sustainability managers could be identified and themes determined based on similarities. This was followed by trend analysis of the frequency of responses to different sustainability and risk themes to interpret the data. Findings Results reveal that sustainability and risk management are similar in their intent purpose and output both aligned towards reducing impacts and managing uncertainty. However even though sustainability has increasingly become integral to business its value contribution and linkage with risk management differ significantly amongst organisations. This suggests that sustainability and risk management remain two distinct frameworks for managing uncertainty in business. Originality/value Research on integrating a sustainability perspective in risk management is at an early stage. To understand and respond to emerging risks, organisations need to integrate sustainability and risk management into their decision strategies – not only to minimize potential losses but also to exploit new business opportunities arising from the sustainability agenda. Future research should be directed towards advancing systematic methods for identifying and managing sustainability risks such that key sustainability challenges are firmly embedded in the risk management of the business. In this regard, organisations would be in a position to build resilience into their business models and operations.
Resilience management in social-ecological systems: a working hypothesis for a participatory approach
Article
Full-text available
  • Jan 2006
Managing Risk and Resilience
Article
Full-text available
Why do some organizations and societies successfully adjust and even thrive amid adversity while others fail to do so? With this editorial, we would like to inspire management scholars to take up the “grand challenge” of studying the role and functioning of organizations during adverse natural or social events.
Managing risks through ISO 31000: A critical analysis
Article
Full-text available
  • Nov 2012
Managing risks is a strategic challenge for organizations, which must face threats increasingly complex and diverse. Introduced in 2009, the ISO 31000 standard is intended to help organizations to manage in a systematic and comprehensive manner diverse types of risk by offering a universal framework to assist the organization to integrate risk management into its overall management system (ISO, 2009a, p. 9). This article aims to shed light on the contributions of this standard, while emphasizing the pitfalls that may arise from misconceptions regarding ISO 31000 and its use as a tool to control risks. Although the ISO 31000 standard has effectively integrated the principles and practices considered most effective by many experts and researchers in the field, the experience feedback from examples of organizational crises in various sectors should lead managers to question how they will integrate it in their organizational strategy. The conclusion suggests that risk management should be seen as a practice-based approach, a strategy that managers do and not a strategy that managers have. In this regard, managers must question their own assumptions in the implementation of such a standard, take into account the specificities of their internal and external organizational environment and remain vigilant in its monitoring.
Applying a Systems Model to Enterprise Risk Management
Article
Full-text available
Enterprise risk management (ERM) has emerged as the new paradigm in risk management with the goal of holistically managing all risks facing an enterprise. Yet organizations still manage risks in a piece-meal fashion and struggle to effectively implement ERM and manage complex strategic risks. This article proposes a solution to this problem: ERM implementation using a system dynamics approach, which enables integrating risks in a causal modeling environment that includes feedback and delays. The methodology is then described using the ISO 31000 Risk Management Standard and illustrated using an example.
Natural Hazards in a Changing World: A Case for Ecosystem-Based Management
Article
Full-text available
Communities worldwide are increasingly affected by natural hazards such as floods, droughts, wildfires and storm-waves. However, the causes of these increases remain underexplored, often attributed to climate changes or changes in the patterns of human exposure. This paper aims to quantify the effect of climate change, as well as land cover change, on a suite of natural hazards. Changes to four natural hazards (floods, droughts, wildfires and storm-waves) were investigated through scenario-based models using land cover and climate change drivers as inputs. Findings showed that human-induced land cover changes are likely to increase natural hazards, in some cases quite substantially. Of the drivers explored, the uncontrolled spread of invasive alien trees was estimated to halve the monthly flows experienced during extremely dry periods, and also to double fire intensities. Changes to plantation forestry management shifted the 1∶100 year flood event to a 1∶80 year return period in the most extreme scenario. Severe 1∶100 year storm-waves were estimated to occur on an annual basis with only modest human-induced coastal hardening, predominantly from removal of coastal foredunes and infrastructure development. This study suggests that through appropriate land use management (e.g. clearing invasive alien trees, re-vegetating clear-felled forests, and restoring coastal foredunes), it would be possible to reduce the impacts of natural hazards to a large degree. It also highlights the value of intact and well-managed landscapes and their role in reducing the probabilities and impacts of extreme climate events.
Enterprise risk management
Article
Resilience, Adaptability and Transformability in Social-Ecological Systems
Article
The concept of resilience has evolved considerably since Holling's (1973) seminal paper. Different interpretations of what is meant by resilience, however, cause confusion. Resilience of a system needs to be considered in terms of the attributes that govern the system's dynamics. Three related attributes of social-ecological systems (SESs) determine their future trajectories: resilience, adaptability, and transformability. Resilience (the capacity of a system to absorb disturbance and reorganize while undergoing change so as to still retain essentially the same function, structure, identity, and feedbacks) has four components-latitude, resistance, precariousness, and panarchy-most readily portrayed using the metaphor of a stability landscape. Adaptability is the capacity of actors in the system to influence resilience (in a SES, essentially to manage it). There are four general ways in which this can be done, corresponding to the four aspects of resilience. Transformability is the capacity to create a fundamentally new system when ecological, economic, or social structures make the existing system untenable. The implications of this interpretation of SES dynamics for sustainability science include changing the focus from seeking optimal states and the determinants of maximum sustainable yield (the MSY paradigm), to resilience analysis, adaptive resource management, and adaptive governance.
Navigating Social-Ecological Systems: Building Resilience for Complexity and Change. Cambridge University Press, Cambridge
Article
Linking Social and Ecological Systems for Resilience and Sustainability
Article
  • Jan 1994
Navigating Social-Ecological Systems Building Resilience For Complexity And Change
Book
  • Jan 2003