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A Good Practice Guide To Risk Management

by | Apr 10, 2018 | Blog, Risk Management |

Risk is intrinsic to business. While there is a degree of uncertainty with risk, it is often possible to be able to predict risk. What this means is that organizational strategies can be implemented that can minimize the negative consequences of risk and maximize the positive ones. Organizations which develop comprehensive risk management protocol are more likely to survive, grow, innovate and become the pioneers of their industry.

While most organizations have established some form of basic loss prevention or reduction measures into their operations, they often do not create a formal risk management plan that empowers their organization to achieve its objectives.

Before creating a risk management plan, it is important to note that it must have realistic foundations. This means a comprehensive risk management framework should be developed prior to implementation. An effective risk management framework should be designed so that it is harmonized to your organization’s decision making processes, goals, strategies, vision and mission statement as well as its day to day operations and management.

Risk

To understand risk management, we must first understand what the definition of risk is in a business context. Risk is the effect of uncertainty on organizational objectives. While uncertainty often provokes negative connotations within a business context, organizational risks can be identified as either positive and/or negative depending on their context. What this means is that organizations must construct their risk management protocols so that actions can be taken to eliminate or reduce the negative consequences of risk and to utilize and enhance the positive consequences.

Risk Management

Risk management enables organizational goals to be actioned upon with confidence. Effective risk management plans anticipate risk. This allows for the implementation of strategic action to be taken that eliminates or utilizes the risk to ensure the organization’s objective is still reached despite deviations from the proposed action plan.

It is imperative your risk management is tailored specifically to your organization. The greater the analysis of the external and internal context your organization operates in, the greater your ability to anticipate and act on risk. A comprehensive risk management framework for your organization means you can identify what your risk appetite is.

Risk Appetite

Simply put, an organization’s risk appetite is the amount and type of risk that it is willing to take in order to meet an organizational objective. It is important to note that this definition emphasizes the importance of having varying levels of risk appetite risks associated with various aspects of organizational objectives. For example, you can have a low-risk tolerance for safety measures to achieve an organizational objective while having a higher risk tolerance towards the cost of achieving the objective.

External Help

Developing a comprehensive understanding of all the factors that impact an organization’s management of risk can seem daunting. However, it is important to note that their are services that specialize in helping organizations develop realistic risk appetite statements. These services are often cloud-based and highly specialized in understanding organizational risk in a business context.

If deciding to seek third-party assistance for the management of your organization’s risk, make sure you do your research. It is imperative that the software they offer is user-friendly, secure and cost-effective. A good starting point for comparing different SaaS providers is to try a demo of their product. You should make sure that it is easy to understand, highly customizable and that it is suitable for your organization.

Third-Party Guidelines

If you first want to consider what exactly the development of a risk management framework entails and how to apply it within your organization effectively, the International Organization for Standardization has created a guideline. The ISO 31000 was developed to provide a universally applicable understanding regarding risk management processes.

The IS0 31000:2009 provides a brief, yet informative step-by-step guide that identifies the components for a risk management framework, the organizational processes involved in setting up and maintaining your organization’s risk management protocols and how to evaluate, monitor and review your handling of risks.

Risk Management Process

The ISO 31000 outline of a standard risk management process framework is essential for any organization. The guideline breaks down the risk management process into four stages:

1. Risk Identification: What could hinder or enhance our progress towards our objective?

2. Risk analysis: Understanding the source and causations of risk and detailing the probability, consequences and severity of the risk in regards to existing risk controls in order to establish the level of risk.

 3. Risk evaluation: The comparison of your risk analysis results to your risk classification criteria to determine whether the risk is tolerable.

4.Risk treatment: Actively changing the magnitude and likelihood of consequences, both positive and negative, to ensure your organizational objective is achievable.

It is important to note that throughout these four stages of any risk management process, continual monitoring and reviewal is carried out. These include:

1. Measuring your risk performance in real-time in comparison to your predetermined risk appetite.

2. Making sure your current risk management framework is still applicable to the risk. Risk is created by uncertainty.

3. Ensuring the risk management protocol is being followed by all relevant stakeholders.

4. Reviewing the risk management protocol post-event to understand what was effective and what wasn’t in navigating the consequences of the risk.

The carrying out of your risk management processes, their monitoring and evaluation all require effective communication and consultation between relevant stakeholders. Collaboration is key when managing risk. Making sure everyone is following the correct procedure and is up-to-date with risk status in real-time, regardless of location, is imperative.

Importance of Effective Risk Management

Effective Risk Management is a great ROI.  While the importance of effective risk management in areas such as health and safety is self-evident, it can also provide financial benefits. Evidence shows that financial markets value organizations that have good risk management. An indicator of this is looking at preventable organizational disasters and scandal in the media and then looking at the share price of that company once the public finds out.

All organizations have to manage risk. The only difference between organizations handling of risk is how they do it. Organizations that predict risks and can manipulate them to their advantage are the leaders in their industry.

Do you want your organization to be referred to as the pioneer in your industry? The choice is yours.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

It is important to note that throughout these four stages of any risk management process, continual monitoring and reviewal is carried out. These include:

 

  1. Measuring your risk performance in real-time in comparison to your predetermined risk appetite.
  2. Making sure your current risk management framework is still applicable to the risk. Risk is created by uncertainty.
  3. Ensuring the risk management protocol is being followed by all relevant stakeholders.
  4. Reviewing the risk management protocol post-event to understand what was effective and what wasn’t in navigating the consequences of the risk.

 

The carrying out of your risk management processes, their monitoring and evaluation all requires effective communication and consultation between relevant stakeholders. Collaboration is key when managing risk. Making sure everyone is following the correct procedure and is up-to-date with risk status in real-time,regardless of location is imperative.

 

Importance of Effective Risk Management

 

Effective Risk Management is a great ROI.  While the importance of effective risk management in areas such as health and safety is self-evident, it can also provide financial benefits. Evidence shows that financial markets value organizations that have good risk management. An indicator of this is looking at preventable organizational disasters and scandal in the media, and then looking at the share price of that company once the public finds out.

Internal link to previous blog on Risk Management Framework

Find internal link to previous blog post draft about the benefits of to switching to the cloud

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