SASKATOON, Saskatchewan — Risk managers should use “war games” to identify and address emerging risks that could potentially threaten the viability of their organizations, according to Susan Meltzer, vice president of enterprise risk management at Aviva Canada Inc. in Toronto.

“Think about the risks that could really hit the business hard. What are the things that can really bring your company down?” Ms. Meltzer asked those attending a session titled “Identifying and Assessing Emerging Risks — What's on the Horizon?” during the 2012 RIMS Canada Conference being held Sept. 9-12 in Saskatoon, Saskatchewan.

To do this effectively, Ms. Meltzer said risk managers must abandon the typical “bottom-up” risk identification process and engage other members of their organizations in the brainstorming process.

“Eliminate the siloed view of risk” and “bring people from all over the organization” to have a “cross-functional debate and scenario-based discussions about what potentially could happen,” Ms. Meltzer said. “Then find ways to exploit the scenario.”

To demonstrate her “war game” technique, Ms. Meltzer invited risk managers in the audience to offer up potentially devastating risk scenarios that could negatively impact their own business operations. After assembling a list that included such diverse risks as weather, changing demographics, government regulation and technology, she directed the group to concentrate on the impact that rising interest rates might have on their business operations.

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Among other things, the group suggested that higher interest rates would increase a business's borrowing costs, possibly stalling its growth. It also might trigger wage inflation or a reduction in demand for its products if individuals could no longer afford to buy them.

Then Ms. Meltzer asked risk managers to consider not only ways to mitigate such probable outcomes, but also how to exploit the situation, such as by changing investment strategy.

She also advised them to research the scenarios to determine whether the concerns raised are realistic.

“Absent information, people come up with a lot of concerns and fears,” she said. “And 99% of the time, risk managers have no information” when they begin the risk identification process.

While Ms. Meltzer demonstrated her war game technique as a way to help risk managers identify emerging risks, she said it could just as easily be used to identify and address current risks. In fact, she said that during one discussion she had at Aviva, the group involved in the brainstorming session realized that the risk they were discussing was already happening to the company. She declined to identify that risk, however.

“You can do the war game with any risks, not just those that are emerging,” Ms. Meltzer said.