Let’s talk about the ways that gray rhinos and black swans are related to risk management. We know that rhinos are large, horned animals that are potentially dangerous to our safety. In the world of risk management, the gray rhino serves as a metaphor for dangerous events that are known but typically ignored due to being considered highly unlikely to occur. Black swans on the other hand, discovered relatively late in 1697, symbolize unknowns or outliers, and represent how certain risks are overlooked because nothing in the past can convincingly point to their possibility.
To address the company’s own “black swans” and “gray rhinos,” the enterprise risk management (ERM) group at ON Semiconductor hosts an annual, off-site emerging risk scenario planning session with a cross-functional group of individuals to evaluate specific emerging risk scenarios that are considered new, ambiguous, unforeseen or slow to develop. Earlier in the year, ON Semiconductor’s emerging risk scenario planning sessions were recognized as a best practice by Gartner and NeuGroup. A case study on the company, Value Driver Scenario Workshops, is included on the Gartner website and NeuGroup’s publication, iTreasurer features an article titled Getting Ahead of Future Surprises.
Emerging risk sessions are a part of the ERM program’s framework that helps us look beyond the nearer term and more tactical quarterly risk assessments into items that are truly big-picture and strategic. By organizing emerging risk sessions, the ERM group strives to overcome obstacles that typically prevent emerging risks from being routinely considered as shown in the figure below.
Each of the emerging risk sessions are largely unscripted to allow for various viewpoints and considerations from our internal stakeholders. However, each scenario discussed on the topic at hand considers the following:
- ON Semiconductor value drivers, which can be defined as key factors or inputs in our business operations that enhance the overall value of the company, such as technology and product, customers, talent and reputation.
- Leading indicators, which are specific signals to the company that the “far off” risk is soon to occur and requires action in order to manage or mitigate the risk.
In the past, the ERM group has planned emerging risk sessions on topics such as geopolitics and autonomous vehicles. This year, a cross-functional group of representatives explored the development and application of artificial intelligence, also known as AI, on ethics and workforce composition. The session commenced with a presentation from Microsoft’s AI Strategy Lead for the U.S. who discussed the intersection between humans and AI. Two scenarios were discussed that focused on the impact of AI development and application in relation to ethics and the composition of our workforce.
The complacency and willingness to ignore or overlook black swans or potential emerging risks is possibly the greatest risk of all. By assessing when and the speed at which the gray rhino is coming at us along with the potential damage it can cause, the ERM group at ON Semiconductor aims to create valuable dialogue and help prepare the company on emerging risks.
