Risk management is a necessity for a business to stay competitive, reduce volatility and maintain sustainability. You may have heard about enterprise risk management, third-party risk management, internal control/financial risk management, security risk management, and business impact analysis frameworks. While the scope of risk considerations differs between those frameworks, they all fit under the umbrella of enterprise risk management, addressing raw data from different perspectives.
Risk management activities should be integrated into the decision-making process of every department from short-term to long term-decisions. Everybody can—and should‑be involved in identifying and assessing and, where appropriate, mitigating risks. Teams should work together and share information to ensure that all perspectives and stakeholders are covered, and the areas potentially impacted are clearly identified and understood by all employees within your organization.
Organizations face multiple obstacles when implementing a risk management program. Some common challenges include lack of a supportive culture, underdeveloped processes, insufficient resources and time, lack of training, lack of incentives for adhering to the program, and lack of senior sponsorship. You may currently face one or more of these obstacles, but acknowledging the barriers and relying on the following principles can help you get moving in the right direction.
Align With Business Objectives
“Align with business objectives” is a statement repeated across all risk management frameworks. It is aimed at providing a way of identification and prioritization of risk, based on the potential risk exposure, utilizing companies risk capacity and risk appetite. Organizations with a low risk capacity (for example a small company may define that at $100K, vs. a big company which may define it at $10M), or low risk tolerance level, should focus more of their efforts on risk identification and mitigation to capture what risks exceed your tolerance threshold. The smaller the risk capacity, the wider the risk universe.
Focus Your Efforts
All risk management efforts should fit within the operating environment of your organization and the activities it performs. You have little to no control over external risks, such as technology, markets, locations, and regulatory frameworks. However, your risk management activities can have strong influence on your internal environment like the company’s culture, formal and informal structures, business objectives and processes, and the relationship between stakeholders. By focusing on these internal areas, you can make small adjustments that will help your company become more aligned with where you want to be in terms of risk.
Standardize Risk Management Practices Across The Organization
To enable communication and consistency among activities and stakeholders, all risk management should be standardized. This also helps with data compatibility and allows you to compare actual results with your initial plans. Aligning risk management practices across units and departments helps facilitate effective decision making by applying the same standards to different organizational objectives.
Use Current and Historical Data on Risk Management to Facilitate Continual Improvement and Develop a Supportive Culture
Current and past information on risk management outcomes provide a meaningful way to evaluate the benefits of the framework regarding key performance indicators (KPIs) such as efficient resource utilization, users/consumers’ confidence, repetition of mistakes, and seized opportunities. KPI analysis drives improvement over time and helps build a much-needed supporting culture within the organization by identifying and visualizing the successes and shortcomings of the process. Users who can correlate risk management benefits to their work activities recognize and proactively manage the uncertainty and are able to create and attain business value over time.
Ensure and Facilitate Communication Between all Stakeholders and at all Levels of the Organization
The governing principles described above will lay the groundwork for a security-aware culture and successful risk management process. Organizations can maximize value when performing risk management activities if they address the following prerequisites:
- Executive management should establish risk tolerance and risk appetite thresholds both company-wide and at the department level.
- Your organization’s value creation change, business services, and their dependencies must be communicated and clearly understood by stakeholders and risk management champions.
- To assign monetary value to risks, the relevant stakeholders must be aware of financial data, such as contribution margins (per customer/product/service), customer lifetime value (CLV) and associated retention percentage, standard costs per labor unit for the organization, average penalties linked to services and or contract violations.
In part II of this series, we will cover how to identify risks, assess risks, and respond to common scenarios. If you have any questions on the information above, do not hesitate to contact us. We’re happy to discuss your risk management challenges and how we might be able to assist.