Countering cascading risks: Navigating the new normal

BDO New Zealand Risk Landscape Report 2024

The big challenge ahead for New Zealand business leaders, who in many instances are still recovering from the events of recent years, is to be prepared for not only immediate risks, but also the cascade of risks that can be triggered from those events. As such, risk needs to be on the agenda at the highest levels in an organisation. In 2024, a broad and strategic risk management approach that links risk management to business objectives may be more fit for purpose than a narrow prevention-and-compliance approach."
Tarunesh SinghBDO Risk Advisory National Leader

Countering cascading risks: Navigating the new normal

Welcome to the BDO New Zealand Risk Landscape Report 2024. In this annual report, we contextualise the major insights from the eighth annual BDO Global Risk Landscape Report, ‘The Age of the Risk Multiplier’ - focusing on the core areas affecting businesses in Aotearoa today. Importantly, our New Zealand report shares a range of practical business tips for local business leaders to help navigate each of the three major risk areas identified.

As we progress through 2024 and plan for the future, now is the time for companies to better understand the risks they face and embed a culture of structured risk management throughout their organisation. We trust you find the report's insights stimulate thinking for your business in effectively planning ahead - to not only mitigate risks, but build a stronger and more sustainable business model.

VIEWING OUR REPORT

This year’s report has been developed for device-friendly viewing in a web-based format (no PDF attachment). Please click on the links below, including the interactive infographic, to view our report insights in each section.


Three major global risk areas identified

The BDO Global Risk Landscape Report explores the interconnected and compounding nature of risks, alongside challenges posed by AI, digital transformation, fraud, human capital, and climate change. Volatility and uncertainty have amplified the 'risk multiplier effect' - meaning combinations of risks can be more disruptive than individual risk factors. Globally, C-suite executives say their companies are least prepared for several key risks, including:  

  • cyber attacks and computer crime,  
  • economic slowdown or a slow recovery, and  
  • environmental risk.  

Our New Zealand risk landscape

This global risk landscape is reflected in the New Zealand market, where geopolitical, environmental, and economic events also continue to impact businesses.  Locally, New Zealand businesses continue to be threatened by cascading risks, where one risk triggers another in a domino effect. This creates a more complex risk landscape for businesses to navigate. The extreme weather events of 2023, economic slowdowns, and an increase in AI-driven fraud and cybercrime underscore the reality of cascading risks, for which businesses must prepare accordingly.

View video insights below from Tarunesh Singh, BDO Risk Advisory National Leader, who discusses the major risk areas identified within the New Zealand business landscape.



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Economic slowdown or slow recovery

Executives globally say an economic slowdown or slow recovery is one of the four risks their company is least prepared for. This has been exacerbated in the wake of COVID-19, where lockdowns reduced demand for many goods and services, resulting in economic loss and workforce cuts. High interest rates, inflation, and political instability all contribute to economic risk for New Zealand businesses in 2024.
Section 1: View insights & tips
economic slowdown

Cyber security and fraud

Cyber attacks and fraud will continue to increase as emerging technologies like artificial intelligence (AI) grow in scope and become more accessible. The impacts of fraud and cyber crime can be extremely wide-ranging, including financial damage and business interruptions posed by phishing, hacking, ransomware attacks, and internet fraud.
Section 2: View insights & tips
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Climate and the environment

Environmental risk is one of the main risks executives believe their businesses are least prepared for. In Aotearoa, we know all too well the impact of unforeseen and unprecedented weather events and the increasing threat posed to businesses by climate change. Businesses should be prepared for supply chain disruption and increased regulation as weather events continue into the future.
Section 3: View insights & tips

The big picture - How cascading risks can impact your business 

Business leaders can no longer afford to focus only on isolated risks and issues. The new risk landscape means you must take a broad view of your risk profile and consider how events and threats intersect and can trigger each other. Cascading risks can spread throughout an organisation, triggering new challenges throughout the business before the initial risk factor is brought under control. This domino effect can be difficult to halt, requiring proactive planning and a fast and coordinated response to prevent further damage. 

We saw the risk cascade effect in full flight with the COVID-19 pandemic and corresponding lockdowns. New Zealand businesses suffered economic loss and workforce cuts as lockdown restrictions impacted incomes and reduced demand for many goods and services. 

The pandemic also introduced working from home for many businesses that did not have robust systems and structures in place to do so safely. This gave rise to a host of cyber security issues, with cyber attackers taking the opportunity to exploit people working from home who were not protected by the same cyber security measures as they would have been in the office. 

Meanwhile, manufacturers experienced the cascading risk of the pandemic through supply chain issues, especially where raw materials were sourced from overseas locations. This combined with falling customer demand to create a complex risk environment which some businesses are still recovering from. 

Almost any risk, and certainly the effect of cascading risks, can cause damage to brand and reputation. This was identified in the BDO Global Risk Landscape report as being one of the top four risks companies are least prepared for.  

We’ve seen this before where increased requirements for ESG reporting have exposed the environmental or social governance issues of major brands. An example of this is in 2015 when Volkswagen was revealed to have inaccurately reported its diesel car emissions, which led to a drop in share price, compensation payouts, and a lengthy process of reputational recovery.  

The intersection of risk between fraud, cyber crime, and reputational damage is extremely strong. Any fraud comes with a reputational risk; however, technology is compounding how serious fraud can be. Intellectual data privacy and intellectual property are classic examples where hacks or leaks can lead to considerable damage to a business’s brand, which can take years to recover. 

Our November 2023 BDO Business Wellbeing Index shows risk continues to be on the agenda for the New Zealand business community. In fact, 20% of business leaders said their business’ exposure to risks they feel unable to control have caused them to feel less mentally healthy in their business lives over the past six months. This shows how important it is to proactively approach risk and have a sense of ownership over it. 

A forward-thinking, risk-welcoming business is better equipped to manage and mitigate cascading risks and can even turn them into opportunities. Risk needs to be on the agenda at the highest levels in an organisation, with everyone taking responsibility for it. In 2024, a broad and strategic risk management approach that links risk management to business objectives may be more fit for purpose than a narrow prevention-and-compliance approach.  


Final comment: Adopting a risk multiplier mindset

The complicated risk landscape in New Zealand and further afield means that companies need to start thinking about risks in a more structured way. Combinations of risks can be more significant than individual risk factors, and the last few years have taught us that events we once thought unlikely, can and will happen. 

When significant and immediate risks dominate the focus for risk leaders within organisations, how do these businesses balance the here-and-now with the bigger picture view of cascading risks? This ‘new normal’ cascading risk landscape - and the complexities it brings - may make it necessary to turn to outsourced risk experts for support in the case of both emergencies and forward planning. 

For more help
BDO New Zealand's dedicated Risk Advisory service can help by developing and implementing formal risk management strategies, frameworks, policies, and processes.

Despite our best efforts, we know that risks can, and do, turn into reality. As a business leader, the most important thing you can do to navigate the cascading risk landscape is to understand your own risk profile and what you can do now to reduce your exposure to risks. However, you don’t know what you don’t know, and best intentions can’t always defend against every combination of risks. By seeking external support, whether that’s from your professional network or trusted adviser, you’ll be better placed to navigate this new reality of cascading risks.
Tarunesh SinghBDO Risk Advisory National Leader
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