The Risk Management Process

In today’s fast changing risk environment organisations need to ensure that risk management processes are robust and protect the interests of all stakeholders through ensuring that a transparent understanding of risk is in place to support effective governance, financial sustainability and its commitment to social responsibility.

Critical to achieving success is that the process for risk management is embedded throughout the organisation, from Board to Basement as it were.

Establishing the risk appetite of the Board is an essential feature, as this will set the bedrock against which all risks can be considered through use of a standard approach to developing an effective risk management framework.

In this regard, organisations will find that deploying risk management software will represent an efficient way of managing the risk management process as this ensures that a consistent approach is used, engagement by those with responsibility for risk is enforced and that the burdens of administration and reporting are minimised through automated processes.

Cleary however the routine of then following the accepted five stage risk management process must be adopted through:

1 – Identification of risks

Includes establishing a risk management culture within the organisation in which everyone understands the importance of effective risks management and commits to a disciplined approach to raising matters of concern that may impact upon the success of the organisation.

This will involve clearly identifying the categories of risk that exist within the operating environment and ensuring that stakeholders have guidance in terms of what matters most – the risk appetite.

2 – Careful analysis of the risk

Reflects a need to determine the nature of the risk which may impact on more than one risk category. The severity of each facet of the risk must be understood in order to assess whether it may be of a concern to the whole organisation or merely a part of it.

3 – Evaluation of the risk against established impact and likelihood definitions

Establishing the level of risk against pre-determined criteria will allow the organisation to determine both the need for corrective action as well as the priority which should be attached to the resolution.

The use of an appropriate risk matrix within the software solution is an effective aid to ranking risks through consideration of both impact and likelihood scales.

The construction of appropriate definitions is critical, remembering that whilst some may be quantitative by nature including financial values or days lost to sickness, others may be qualitative such as reputational risks which may need more careful framing in order to explain the context of the Board’s concern.

4 – Effectively treating the risk

Identification of solutions may need to be owned by a single risk manager or require the input of a broader group of managers that may be affected by the risk.

Effective treatment therefore requires ownership to be allocated to the appropriate tier of management as this will ensure that automated software provides reminders regarding when actions are due, as well as reporting on progress and completion by due dates.

5 – Monitoring the risk to review whether it is maintained within the established risk appetite

Ultimately remains essential in ensuring that the organisations risk management framework is robust.

Risks very rarely disappear and therefore whilst confirming that the initial action has sufficiently reduced the residual risk to an acceptable level is crucial, it is important to remember that risks can change quickly, therefore allocated responsibility for both continuous review and more formal review on say a monthly, quarterly or annual basis according to the assessed level of exposure represents an established aspect of a sound risk management process.

Organisations operating in all environments must maximize the efficiency of the risk management process and in this respect an automated risk management solution can be a cost-effective option that can simplify the process outlined above.

In practice, developing a digital platform that effectively helps to embed practices which identify, analyse, evaluate and improve the treatment of risks will help ensure that the organisations ability to demonstrate effective risk management processes are maintained as an essential feature of good governance no matter what the size of the organisation or the industry or sector in which it operates.

Establishing an appropriate Risk Management Policy that sets out the Boards approach to establishing a suitable risk management process for the unique circumstances of each organisation is fundamental.

How this is then embedded represents a challenge to most, automating the process will be beneficial to every organisation as by ensuring that managers are fully engaged this will likely be advantageous in ensuring business success.

Ensuring that appropriate risk management strategies are transparent and evident in how the organisation interacts with all its stakeholders, will inspire confidence in all its dealings.