Social-Media Analytics Offer New Insight on Risk

Companies leveraging Big Data and next-generation analytics to drive operational decisions are ushering in a shift away from looking at risk and au...
Taylor ProvostApril 15, 2013

More businesses than ever will begin using social media to identify quickly arising intellectual-property, reputational and brand-value risks, according to a new PricewaterhouseCoopers survey.

PwC’s Risk in Review report, based on responses from 800 global executives, found that risks related to the impact of digital technologies on intellectual property and reputation will be of particular concern for companies over the next year.

As a result, PwC found, the use of intellectual-property, reputation, and brand-value audits will double over the next 18 months among the four primary industry groups surveyed: technology and entertainment, health care, financial services and consumer/industrial, with technology-centric companies leading the charge.

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Reputation audits involve scrubbing conversations taking place on social-media channels, namely Twitter and Facebook, to identify movements in consumer confidence and overall brand reputation, Jason Pett, PwC’s U.S. Leader of Internal Audit Services and co-author of the report, tells CFO. Over 40 percent of executives surveyed said social media is likely to put them at risk in the next 18 months. “They’re looking for issues going viral very quickly or trending on Twitter that might affect the brand, and actively trying to get ahead of that,” says Pett.

The concept of keeping tabs on social-media conversations about one’s business, also known as sentiment analysis, is several years old in the marketing world. “But now companies are using that same technology to look at sentiment from a risk perspective,” explains Vikas Agarwal, managing director at PwC’s Advanced Risk and Compliance Analytics Services.

Generally such analysis involves the use of a third-party vendor or consulting company, and the report notes it can be hard to calculate the ROI of such an endeavor because it works best when risks are avoided and thus don’t result in any cost to the company. But, Pett says, CFOs are becoming more sophisticated and involved in understanding the implications of risk on the overall business, as opposed to a singular focus on compliance risk.

“The returns are generally understood, although not easily calculated,” Pett says. “CFOs see this is as something they need to invest in, and it’s really just using data analytics and other more forward-looking strategies to get better returns with the same risk-management budget. You don’t see a lot of pushback on return because the issues that result if you’re not calculating risk properly are so significant.”

In addition to reputation and brand audits, the report found that consumer and industrial companies – which, Pett says, are increasingly operating in markets with less-rigorous protection for intellectual property – plan to more than double their use of intellectual property audits. That is, they plan to take a fresh look at the risks surrounding intellectual property in new markets, along with how intellectual property can be controlled, exposed or easily duplicated in such markets.

“For example,” explains Pett, “A lot of companies have been moving into Asia, but the region’s laws aren’t as stringent in the intellectual property areas as some other countries, possibly leading to replicating products on the open market. You have to take a fresh look at where your risks are around your intellectual property.”

One in four survey respondents said they were dissatisfied with their ability to analyze and identify emerging risks within their organizations using traditional risk-analysis tools, as the risks an organization faces daily become more complex. “There’s so much data out there, it’s hard to weed through it,” says Pett. “Companies that are more satisfied [with their ability to analyze risk] are moving into visual-analytics reporting so they can work their way through the data in an accessible way.”

Visual analytics refers to sophisticated risk-analytics tools that can hold billions of rows of data, sift out the risk patterns within that data and display the results in a user-friendly interface. The survey found that more companies will adopt the use of such tools in 2013. “CFOs and [chief risk officers] have told us their biggest challenge is finding key risk metrics (KRIs) and trending them because tools they have today really don’t allow them to do that.”

The data architecture at many companies has resulted in a complex web of data in multiple locations, within different systems and being used for different purposes, the report found, but a plethora of vendors and service providers have emerged in recent years to bring all that data into a single, navigable entity.

As a result, risk dashboards are also projected to become more common in the enterprise, according to the report, as companies move to make data more transparent and readily available to company executives.

While that may sound like an IT project meriting a risk assessment of its own, Agarwal stresses the need for CFOs to embrace technology in order to remain competitive. “In some cases you’re going to need tech-centric professionals to help implement the tools, but the more leading tools are user-friendly enough that risk managers are using self-service analytics,” he says. “Companies embracing technology in this area are getting a better ROI because the technology is actually making these risk-management processes more cost effective.”