How to Stop Underestimating Future Risks? Practical Ways Businesses Really Get It Right
Summary: This article shares real-world strategies for organizations to prevent the classic pitfall of underestimating future risks. Drawing from my own hands-on experiences, plus actual case studies and regulatory frameworks, we look at what techniques truly work and where people (including myself) have gotten it wrong, so you don’t have to.
Why Is Accurate Risk Assessment So Tricky?
Look, every business person I know has underestimated a risk at some point, myself included. You might think your supply chain is bulletproof, or that a new competitor can’t possibly eat your lunch. That’s all fine—until it isn’t. Gartner’s survey in 2023 found 73% of leaders anticipate disruption, but only 44% feel prepared. So, what gives?
From months buried in compliance files and a few gut-clenching “should we have seen this coming?” meetings, I’ve realized most misses boil down to (1) incomplete information, (2) blindspots, and (3) wishful thinking. But there’s good news: risk management really is a learnable skill. You don’t need to be a black swan whisperer. You just need to adopt systematic techniques and—here’s my favorite part—treat it like a living process, not a box-ticking exercise.
Step-by-Step: Real Risk Management You Can Actually Use
Step 1: Start With Structured Risk Identification (Don’t Rely on Gut Alone)
If you just gather your team and ask, “What could go wrong?” you’ll get partial answers. Instead, use frameworks that force you to look at the business from multiple angles. COSO’s Enterprise Risk Management framework is the gold standard.
In practice, I break this into four axes: Strategic, Operational, Compliance, Financial. For each, rip through business units, markets, and key projects. It’s awkward at first, but after a few sessions, patterns emerge you’d never see otherwise. (Screenshot below is a sanitized sample of the grid I use for mapping risks in a mid-sized trading firm; client names changed of course.)
It’s easy to miss things like, say, dependency on a single vendor in China who—turns out—might suddenly get sanctioned. This happened to a client of mine in 2022. Not pretty.
Step 2: Quantify Risk—Even if the Data Is Messy
Once you spot risks, don’t just color code them “high/medium/low.” That’s where most people (me, initially included) fudge things. Use at least two axes: likelihood and impact. Excel or PowerBI is enough at the start—no need to get fancy.
The ISO 31000 standard (ISO Link) gives you a jargon-filled template, but the gist is: score from 1–5 for each, multiply them together, and sort by highest numbers. Here’s a typical heatmap:
I once assigned a “2” for impact to what I thought was a minor IT risk. Six weeks later, we lost access to a critical database for two days—our customers noticed, and our CTO still jokes about my “optimism.” Moral: overestimate, then adjust down if you must.
Step 3: Use Scenario Planning—The “What If” Game That’s Actually Useful
This one’s straight from business school, but it works. Take those top risks and actually walk through “what if this happened?”
- What would your team do if a key market banned your product overnight?
- If an essential input doubled in price, what’s your plan B?
- How long could cash reserves last under different stress cases?
WTO’s trade guidelines (see here for detail) require scenario analysis for big exporters—it’s not because they like paperwork, it’s because, over time, the businesses who ran “dumb” what-if drills outperformed those who didn’t (see case studies OECD).
I remember simulating a cyberattack in our team—at first everyone laughed it off, but when we did a live ‘lock out’ of emails for 30 minutes, panic set in. Suddenly, backup protocols looked a lot less “theoretical.”
Step 4: Continuous Monitoring—Not Just an Annual Audit
This is the bit most people skip and which bites you hardest later. Risks evolve. Regulations change. Global politics shift. So, have someone (or an automated dashboard) watch KPIs that indicate risk in real time. Almost every trade-related compliance issue I’ve fixed was because the business “set and forgot” old controls. Lesson learned.
A recent McKinsey report (see here) found that companies with “living risk registers” caught issues 40% faster and with 30% less financial damage.
Case Study: Free Trade Friction Between Country A and Country B
Here’s one that stuck with me. Company X, based in Germany, was exporting high-tech components to Country B (let’s say South Korea). They assumed—based on historic deals—that their shipments met “verified trade” requirements for both the EU and Korea. But suddenly, South Korea’s customs authority rejected several large imports, citing differences in how each country verified product origin and environmental compliance. The financial hit was six figures, and their entire quarterly targets were at risk.
The issue? Germany and South Korea both claim to use “verified trade” standards, but each defines and confirms it differently. Let’s break this down.
Table: Key Differences in "Verified Trade" Standards Among Nations
| Country/Region | Standard Name | Legal Basis | Certifying Body | Enforcement Practice |
|---|---|---|---|---|
| EU | Authorized Economic Operator (AEO) | EU Regulation No 952/2013 | National Customs | Periodic audits & regular reporting |
| USA | C-TPAT (Customs-Trade Partnership Against Terrorism) | Homeland Security Act | U.S. CBP | Self-assessment & random audits |
| China | Advanced Certified Enterprise (ACE) | General Administration of Customs Decree 251 | China Customs | Mandatory annual reviews |
| South Korea | AEO Korea | Customs Act | KCS (Korea Customs Service) | On-site inspection & doc checks |
The German team assumed “AEO” would get them green-lighted everywhere. They were half right. I called a compliance officer at KCS (seriously, the email trail is still in my archive). Their perspective: “We respect EU AEO, but require our own environmental forms and direct site checks. That’s always been our law.” See, even with all the international “mutual recognition” talk, reality is full of weird wrinkles.
What Do the Experts Say?
I asked a friend (let’s call her Laura), who’s been in international compliance for over a decade, what’s her biggest advice? “Assume every government is going to double-check your paperwork, no matter what some treaty says. Always over-prepare, and keep a living risk file.” Couldn’t agree more. Here’s an example from WCO confirming: even “recognized” standards can diverge in application.
On the numbers side, OECD analysis (source) found that firms that actually adapt controls per destination (not just use global templates) face 30% fewer customs holds and 45% less lost goods than those who unplug and pray.
Bottom Line & What Next?
If you’re tired of conversion-table headaches and “but the regulation says…” arguments, that’s a sign you’re actually getting how messy risk is. Here’s my go-to game plan:
- Make risk identification and scenario planning part of your quarterly meetings. Seriously. It’s more useful than another vision board session.
- Don’t trust a standard just because it has an impressive acronym. Find the legal text, email a regulator about odd clauses, and always pilot your process with one smaller trade before scaling.
- Use data—any data—for ongoing checks. If vendors change, or a new compliance memo pops up, review your risk map. Preferably before customs does it for you.
I’ve made my share of mistakes by assuming alignment between international paperwork and local rules. Now my mantra is: check, check, and ask again. And if you forget, your customers—and the next customs official—will remind you.
Future steps: I recommend subscribing to at least one regulatory update newsletter per core market (OECD, WTO, WCO all have public alerts), and scheduling a quarterly review session—even if it’s just you and a mug of coffee. For more details on mutual recognition and risk best practices, start with the WCO AEO guide and OECD governance hub.