We all manage risks in our lives every day – both at work and in our personal lives. We constantly assess risks in our mind to determine what steps we should take to try and prevent these risks from negatively affecting us. We anticipate the likelihood of something happening to our vehicle, so we purchase insurance. We anticipate the likelihood of a burglar breaking into our house, so we install an alarm system and new locks. We anticipate the likelihood of rain, so we’ll carry along an umbrella.
Every business organization also has risks that are unique to their environment.
The AICPA defines Business Risk as risk “resulting from significant conditions, events, circumstances, actions, or inactions that could adversely affect an entity’s ability to achieve its objectives and execute its strategies.” Essentially, the success and operability of your business organization depends on how well you manage the risks at your organization. We hear more and more discussion around the term “Risk Management” as the threat landscape continues to grow.
Let’s take a look at five important Risk Management best practices.
Learn more: watch our video on What is Risk Management?
What are Best Practices in Managing Risk?
1. Involve Stakeholders
In order to effectively manage risk, you should involve the stakeholders every step of the way, beginning with the initial Risk Assessment. Stakeholders can include people such as managers, clients, employees, shareholders, unions, etc. Many of these individuals may be key personnel and are key to your Risk Management processes. Each of these individuals represent different roles and responsibilities within your organization, thus giving you a holistic representation of all of the aspects of your business and each risk that comes along with it. Encourage stakeholders to help improve the continuous risk process by getting them involved in answering the question, “What keeps you up at night?”
2. Tone from the Top
Our second risk management best practice – and an important step in any successful Risk Management program – is creating a strong risk culture. Risk culture is defined as the values, beliefs, and attitudes about risks by a common group of people. It is the responsibility of management and the board of directors to clearly communicate the company’s culture and set the tone for compliance from the top. Management buy-in is critical to ensure that the importance of risk awareness is emanated throughout the entire organization. What is your company’s risk culture?
Communicating risks throughout your organization is another important aspect of Risk Management. Key risks, or risks that would have a high organizational impact, are identified and monitored by all departments. Any new risks are identified, assessed, and mitigated properly. You must create awareness of risks through communication to your entire organization.
4. Clear Risk Management Policies
Is your Risk Assessment policy clearly documented? Are the roles and responsibilities clearly defined? Are there clear policies and procedures defining mitigation of any and all identified risks? Do you have a Business Continuity Plan and an Incident Response Plan in place that map out how your organization will handle and overcome any unforeseen risks? Are these policies communicated effectively to all employees? Having these clear policies developed will help you identify all potential risks that could affect your business, the likelihood and impact of those risks, how you plan to mitigate and prevent those risks, and how you will monitor for and manage and new risks.
5. Continuous Risk Monitoring
In order to manage your risks, you must first know what your risks are. Assuming you’ve already performed your initial risk assessment and have put the proper controls in place to mitigate and address these risks, the next crucial step is monitoring. Clear monitoring processes must be established to ensure that any and all risk mitigation efforts are working and effective. This is a crucial aspect of any Risk Management process.
Risk Management, the process of determining what the risks are to your organization and creating steps to mitigate those risks, is critical to your organization. It’s a continuous and constantly evolving process. We hope these good practices in risk assessment and risk management have helped outline a plan for your organization.