Increasing Complexity Creates Challenges for Risk Management

The pace of change and global interconnections in business have resulted in increasing complexity, creating significant risk management challenges for companies to address. KPMG commissioned Lighthouse Global to conduct research related to the causes and impact of complexity among large companies across a range of industry sectors and countries. This paper, published by KPMG determined that managing complexity is a critical issue facing businesses, with more than 94% of senior decision makers agreeing that managing complexity is essential for their organization to be successful.

The leading causes of complexity that became apparent from the study include:

• Regulation and government oversight,
• Information management,
• Speed of innovation, and
• The variability of complexity.

With the causes of complexity expected to shift over the next two years, businesses leaders face an ever-increasing difficult task of identifying risks arising from complexity and managing that risk within acceptable levels.  Given the rapidly shifting nature of underlying causes of complexity, all too soon management discovers that the underlying driver of complexity has quickly evolved, leading to new risks to oversee. Increased risks to manage emerged as the greatest challenge to both mature and developing economies produced by complexity, with more than 80% of executives stating that complexity creates more risks for their organization to manage.

Complexity creates sources of new opportunities, in addition to increasing challenges. At least seven of ten executives stated that complexity establishes the opportunity for:

• Gaining competitive advantages,
• Creating new and better strategies,
• Expanding into new markets, and
• Making their organization more efficient.

To respond to the impact of complexity, businesses have made various efforts to adapt to the changes, with mixed results. These efforts include improving information management, changing the configuration of the organization, investing in new geographies, and developing and hiring the new skills needed.

Complexity creates increasing challenges that must be addressed by organizations. One of the most noteworthy challenges is managing increasing risks due to constant innovation, complicated regulation and government oversight, the abundance of information, and the variability involved in today’s world. In addition to challenges, sources of opportunities are created by increasing complexity. Organizations should obtain an understanding of the causes and impact of complexity in order to incorporate responses into the organization’s strategy to effectively manage the challenges and opportunities presented by complexity.

Original Article Source:  “Confronting Complexity: How Business Globally is Taking on the Challenges and Opportunities”, KPMG, January 2011