Key Components Of A Risk Management Policy

The components of a risk management policy or how to create a risk management policy include; introduction, approach to this policy, sources of risk, risk management framework, crisis and management processes, staff training, roles and responsibilities, and ERM organizational structure.

These components of a risk management policy make it an essential part of any organization. This article will discuss how to create a risk management policy that will help you establish the necessary organization-wide culture.

The purpose of a risk mitigation policy is to identify, assess and manage risks facing an organization. By establishing a serious risk mitigation management policy, an organization can ensure that it is taking all necessary steps to protect its assets and safeguard its stakeholders.

A risk management policy is a critical document for any organization. It outlines the steps that will be taken to identify, assess and mitigate risks to the organization.

In this blog post, we will discuss the key components of a risk assessment and management policy. We will also provide some tips for creating a a risk assessment and management policy that is tailored to your organization’s needs.

It is important to define the mission and goals of your organization. Having well-defined goals will help you stay focused on what is most important for your organization.

In addition, it will also be beneficial to develop a vision statement that clearly outlines how your organization’s success will be measured. Establishing these key components upfront will help you stay on track and ensure that risk management is integrated into your organization’s culture.

Introduction

The organization’s core business needs to be identified in the background of the policy. This will include objectives of , benefits of risk management to the organization, and linkage to other policies.

The risk management policy will then need to be explained through the following topics: risk treatment options, risk management process, and risk appetite.

For each of these three main components of risk management policy, key concepts need to be mentioned first followed by the actual policy statements on how risk is managed. The risk management policy should be written in simple language that all levels of the organization will understand.

The simple language will allow the employees to appreciate the risk culture and improve the risk-taking culture of the organization.

Objectives in Managing Risks

There are three main objectives in managing risks: to prevent losses, preserve capital, mitigate risks and ensure the organization can continue to do business. Each objective is essential for a successful risk management program.

To prevent losses, organizations put in place controls and procedures to identify and manage risks before they have a negative impact on the business. Losses can be financial or non-financial, so organizations need both financial and operational and risk management contingency plans and programs.

To preserve capital, organizations limit their exposure to risks by diversifying their investments and not putting all their eggs in one basket. They also use stop-loss orders and other hedging techniques to protect their investments from market fluctuations.

To ensure the organization can continue to do business, risk management is integrated into the daily operations of the organization. Organizations monitor risk exposures and report on risk profiles regularly to ensure they can adjust risk levels at any time.

Benefits of Risk Management to the Organization

In today’s increasingly competitive environment, organizations need to be able to manage risks in order to stay ahead of the game. When it comes to using risk management strategies, there are many benefits that can be offered by your organization. Some of these benefits include:

1) Improved decision-making through scenario planning, evaluation and crisis management;

2) Enhanced communication and collaboration across all levels of staff;

3) Increased efficiency due to both formalizing processes already in place and streamlining new ones;

4) Improved technology for compliance with government regulations such as GDPR (General Data Protection Regulation).

These are only a few examples among many possible benefits that could come from implementing a comprehensive risk management plan within an organization.

This reduces the impact of potential adverse events on the business and its stakeholders. It also helps ensure that resources are not wasted on protecting against risks that cannot materialize or on reacting to incidents after they have happened – where prevention is possible, there’s little point in wasting time investigating what could have been done differently if something bad had actually happened.

Linkage to Other Policies

A risk management policy should be linked to other organization policies that are important for the success of a company. Some examples include human resources, finance, marketing, and communications, information technology security, and compliance with regulations such as Sarbanes-Oxley Act (US) or Privacy & Electronic Communications Regulations (UK).

A good way to link these policies is through an enterprise-wide Risk Management Plan which will help identify risks across all areas within the organization. This risk management plan can then be used by various stakeholders – including employees who may not have responsibility for specific areas but still want their part in keeping the business safe – by providing them with regular updates on key issues related specifically to their role or function.

A clear integration strategy will define how risks are identified, assessed, and managed within the organization. Policies such as personnel, compensation; benefits; quality assurance/quality control; financial resource allocation can all play a role in managing risks associated with different aspects of an organization’s business process or operations.

Additionally, it’s important to ensure that your risk management policy is regularly reviewed and updated to reflect changes in the organization and the ever-evolving threat landscape. By doing so, you can ensure that your risk management program remains relevant and effective in addressing the organization’s risks.

Approach to this Policy

Risk management in the organization might be done in accordance with the ISO 31000:2018: Risk Management Principles and Guidelines, and COSO 2017 Enterprise Risk management framework. The organization might choose one of these approaches. This risk management important will include the risk manager register and risk management process outlined in the risk management plan.

Risk Register

A risk register is a document that lists all of the potential risks to an organization and their associated likelihoods. It also includes strategies for managing these possible risks now, as well as estimates of their likely impact if they were to occur.

A risk register is a comprehensive, ongoing list of risks and opportunities associated with a given policy or project. It can help to inform decision-making and ensure that key stakeholders are kept up to date on potential dangers and benefits associated with a policy.

The contents of a risk register will vary depending on the specific policy or project in question, but generally speaking, it should include:

-A description of each risk or opportunity or risk event.

-An assessment of the probability, likelihood, probability and impact of each event

-Mitigation strategies for reducing the impact of identified risks

-Notes on any actions taken (or planned) in response to identified risks/opportunities

– Risk name

– Description of the risk

– Date identified

– Risk owner

– Impact (high, medium, low)

– Likelihood (high, medium, low)

– Mitigation strategy and planned actions

A good risk identification and management policy will outline who is responsible for creating and maintaining the risk register, as well as who is responsible for taking action when a particular risk occurs.

Risk management process

The risk management process is an important part of any company’s policy. It helps to outline how risks can be minimized, eliminated, or managed in a way that will protect the organization from harm. The following are key components of a sound and effective risk management process under ISO 31000: 2018.

• Establish the Context – Identify the company’s mission, key initiatives and objectives, standards, and criteria that will be used throughout the organization to guide decisions. Determine how good corporate practices can work in conjunction with strategy. Identify the primary areas of focus for improving leadership skills within your organization through strategic planning.
• Identify Risks – Identifying all potential dangers, as well as any possible drawbacks that could have an impact on the activity or process, is a necessary first step in risk management.
• Analyze Risks -Evaluating the potential likelihood and impacts of identified risks
• Evaluate and Rank Risks -Assessing risk tolerance and assigning priorities is at the heart of a risk-management system.
• Treat Risks -Finding and implementing the greatest feasible countermeasures to avoid known risks is a difficult task.
• Monitor and Review – Annual physicals and ongoing monitoring and assessment of hazards are critical to ensuring that your company’s insurance policy is still valid. and
• Communication and Consultation- Senior management, business unit managers, staff, and other stakeholders will be consulted and communicated with in relation to the risk management process and its outcomes. This will include the process between management, senior management, and the board as well as continuing reporting of data from the process. The treatment should have been given the go-ahead by the company’s senior management.

Sources of Risk

The policy may categorize the organization’s operational risks into two groups. Internal and organizational risks that stem from the internal climate may come from policies and procedures, projects, financial and human resources, business processes design, and technological usage.

The majority of compliance risks come from external sources. This generally refers to concerns such as non-compliance with legal and regulatory procedures. External risk sources may also include financial sector physical risk. Examples of risk sources may include risk related to the organization’s products, services, customers, and suppliers.

Risk categories

This policy acknowledges that numerous types of other risk factors and events may have an impact on the organization’s success at all levels. Externally or internally driven risks fall into several categories as shown in the figure below.

A risk management policy typically outlines the different categories appropriate levels of risk that a company is willing to take on, and assigns a certain level of acceptable risk to each category. For example, a company might categorize its risks as follows:

1. Business risks – Risks related to the company’s ability to make money, such as bankruptcy or marketplace changes
2. Financial risks – Risks related to the company’s financial stability, such as liquidity issues or large debts
3. Compliance risks – Risks related to legal and regulatory compliance, such as fines or lawsuits
4. Operational risks – Risks related to day-to-day operations, such as system failures or employee accidents
5. Strategic risks – Risks related to the company’s long-term goals, such as a decreasing market share or a small risk of bankruptcy.

Risk Management Framework

The goal of the organization is to establish reliable procedures and processes in order to identify, evaluate, track, and manage risks on a continual basis as a result of its activities.

The organization needs to have a proactive approach to risk management and has established a comprehensive framework. Such a framework will seek to:

• Continuously assess the organization’s key risks.
• To assess the relative significance of each risk, compare its size to the likelihood of occurrence and the potential consequence if it were to occur.
• Assess the significance of each risk against a predetermined scale to identify high, medium, and low risks.
• Examine the controls and risk mitigation methods in use to tackle the identified risks.
• Specific follow-up action should be taken for risks that are high and medium.
• On a regular basis, include indicators that track various aspects of risk and the risk management procedure inside the company.
• When an adverse event occurs, track it.
• Ensure that planned internal control system changes are implemented as soon as possible.
• Obtain proof of correct control operation from those in charge of the controls on a regular basis.
• Ensure that risk management data is supplied to senior management and the board on a regular basis.

Tools for implementing the framework

The following tools & procedures will be used to fulfill the framework’s standards:

1. Risk and control self-assessment (RCSA)

This process, known as the risk and control self-assessment (RCSA), includes a risk analysis and control self-assessment for all business units on a regular basis. The purpose is to:

• Assign a point value to each risk, and then rank them from highest to lowest. Then, rank the top ten risks facing the business unit by their total importance score.
• Determine the controls that address each risk.
• Before and after considering the controls, evaluate the risks in terms of their likelihood and consequence.
• As required, improving controls
• Preparing reports summarizing the results for use in management and board presentations.

New risks are to be submitted to the RCSA on a regular basis, especially if there are any changes in the control framework. New Business Units should keep the RCSA informed about anything new.

2. Control Compliance

An attestation must be obtained once a month from the employee in charge of completing them. A signed attest-a-monthly formal attestation from each key control.

If controls have not functioned properly throughout the year, the employee in charge of them must explain why. The business unit attestations will be submitted to support the senior management attestation to the board each year that the control environment has been functioning effectively throughout the year.

3. Key Risk Indicators and Incidents Recording

Risk indicators (KRIs) are data that show how well a certain part of the internal control system is performing and/or the level of current risk. This policy necessitates that all company divisions must monitor and report on key operational risk factors and indicators to management and the board in order to provide management with insights into critical issues.

• A warning system for impending risk issues.
• An on-time analysis of the risk and control environment.
• Senior Management, Business Unit Management, and the Risk Management Unit (RMU) will combine to discover key risk indicators.

4. Risk Treatment and Action Tracking

As part of the overall risk management process, the company may need ongoing identification of control enhancements by all personnel. Control improvements must be considered where:

• A net residual risk is classified as high (red) or medium (yellow) on an unadjusted basis, and the risk has not been formally accepted.
• The risk has not been formally accepted and it is either high (red) or medium (yellow).
• A qualifying incident has occurred.
• During the last six months, a critical control has not functioned properly.

Employees with an improvement action point must complete it before the due date. When a deadline is missed, management should be notified. On a monthly basis, business unit management and senior management of outstanding and late action points in their sector are required to receive reports. Management must follow up on overdue action items with the responsible employee.

5. Reporting

A monthly reporting cycle for risk management activities will be used by the organization. When reportable events occur in a given month, they should be reported as soon as possible.

The Board should be informed of important information on a regular basis, as required. At each board meeting, the key information in the reports to management should be summarized.

Crisis Management

A crisis management plan is implemented in the instance of a risk-related calamity. The company continuity policy must include this plan, which addresses the organization’s business continuity measures:

• Team members involved in the crisis management process
• The process for reporting crisis situations to senior management and the crisis management team is outlined below.
• The crisis management team’s operations
• Information flows must be handled carefully, with employees, clients, media, and relevant stakeholders.

Staff Training

It is critical that relevant workers are trained on an ongoing basis on how to implement and maintain the risk management framework. This training includes, but is not limited to,

• Senior Management and the Board of Directors will receive an overview of the entire ideas and framework.
• Staff with specific knowledge of the framework and its associated systems handle the majority of the specifics.
• Employees with regard to overall awareness and responsibilities

Roles and Responsibilities

There are no exemptions to this guideline, which applies to all personnel. The Board, senior management, and other supervisors must set the tone for effective risk management by following particular responsibilities as follows:

1. Setting risk management expectations and goals
2. Ensuring that risks are well understood, communicated, and managed at all organizational levels
3. Promoting risk awareness throughout the organization by means of risk-management training programs for managers and employees who have risk-related responsibilities
4. Monitoring risk management performance

This will include the roles of the board of directors, the CEO, enterprise risk management committee, senior in risk management processes, risk management unit, internal auditors, and all staff who manage risk there. All their roles need to be outlined in the risk management policy.

ERM Organization Structure

A reporting and review structure must be set up to guarantee that risks are correctly identified, evaluated, and appropriate controls and responses are introduced in order for them to be effectively managed.

Risk Management Officers should be given a clear understanding of their responsibilities in coordinating and managing risk management activities and included in their performance contracts, in addition to other operational duties. Risk Management Officers should be given the responsibility of evaluating the adequacy of existing policies, procedures, and controls

Reviews must provide a basis for judgment about risk universe whether or not risk management practices are adequate and secure.

The Board should be regularly updated on risks as part of their oversight responsibilities (i.e. via quarterly or annual reports).

Risk Management Policies should include controls for identifying, evaluating, prioritizing, and treating risks to achieve objectives.

Strategic risk management goals must be developed in conjunction with the business strategy, taking into account competitive forces and external factors that can affect or mitigate its success.

Interpretation of the Policy

In the end, the Corporate Risk Officer is in charge of implementing and interpreting this policy.

Conclusion

This article has provided you with the necessary information to create a risk management plan and policy that will help your organization establish an organizational culture of risk awareness. Whether you are just starting this process or have been doing it for years,  We hope this article has been helpful in understanding how to create a formalized approach for managing risk within your company. If you need assistance creating a viable strategy, be sure to get in touch with us! As always, thanks for reading!