As businesses worldwide continue to change and innovate to meet customer expectations, the potential risks change. Prioritising risk management and effective internal controls is essential to business continuity. Therefore, it is important to wisely approach, evaluate and monitor risks to minimise business threats.
Risk management is a methodical process of identifying, assessing, and managing risks that could threaten a business. It is a critical process that requires an internal audit function to establish the top risks faced by the organisation.
Technology & Information Security Risk Management.
Since the start of the Covid-19 pandemic, digital transformation and the use of new technologies has accelerated worldwide to meet business model changes and customer expectations. As a result, cybersecurity is a significant concern for organisations. A breach of cybersecurity impacts several other risk categories, and can additionally result in legal, compliance, operational, and reputational consequences. There is scope for extensive vulnerabilities if cybersecurity risks are overlooked.
Information is a principal asset for every organisation regardless of industry or size. Therefore, information security management certification is particularly useful as it demands a standard of security for information systems. Essentially, it helps to validate that when it comes to risk management, the organisation is vigilant. It assures its clients and stakeholders that confidential information within the organisation is managed safely and securely. An international standard to manage information security is ISO/IEC 27005 (and related standards).
What key steps can be taken to effectively manage risk?
Determine the business context.
What are the potential threats? For example, technology & information security risk, compliance risk, operational risk, economic risk, safety risk, contractual risk. A risk appetite framework offers a valuable way to connect risk management and organisational strategy by evaluating business activities and strategic goals. Risk appetite refers to the level and type of risk an organisation is willing and able to accept in meeting its goals and obligations.
Identify risks.
Risk identification is a deliberate and systematic approach to defining and detailing key risks. By accumulating risks from across the organisation and tracking Early Warning Indicators (EWIs), there is a greater chance to detect threats and decide the mitigating plan before they happen. Predicting possible risks early allows time to plan and respond appropriately.
Analyse risks.
What are the risk factors? How are they evolving? What is their frequency? Risk analysis enables an organisation to identify, rate and compare the overall impact of risk. Some risks will translate into minor difficulties while others can present a substantial threat. Risk considerations can then be factored into planning decisions.
Consider the exposure level.
What is the magnitude of each risk? Risk exposure refers to the level of loss the organisation may experience linked with the probability the loss will occur. It is important that the exact nature and magnitude of the risk is captured, and a scoring system helps to determine each risk probability and severity.
Develop a risk strategy.
This is your best possible strategy for dealing with uncertainty. It is used to identify and avoid the potential cost and disruption by taking a proactive and structured approach to manage adverse outcomes, respond to them if they occur, and discover hidden opportunities.
Monitor, report and control.
Monitoring risk is a continuous process of awareness of the activities across different parts of the organisation that enables you to:
- recognise critical trends
- respond efficiently and appropriately
- identify process improvements or business opportunities
Reporting risk is the process of communicating the most urgent risks to stakeholders. Typically, it will address critical risks, where outcomes could be severe, and emerging risks that grow in severity if not monitored.
Controlling risk is the action you take to reduce the risk. It involves evaluating various control measures and choosing the control that most effectively eliminates or minimises the risk.
Establish a risk management programme.
A risk management programme relates to the culture and structures required to effectively manage potential opportunities and unfavourable outcomes. Risk policy and process define the coordinated activities to direct and control the organisation with regard to risk.
- Develop knowledge of your risk programme.
- Ensure leaders and employees are both aware of and understand enterprise-wide risk exposures so that everyone is empowered to assess risks and take appropriate action.
Risk Treatment Strategies
Risk treatment is the response and process used to develop, select and implement strategies to reduce risk exposure.
Avoidance: Prevent risk from occurring by eliminating exposure to the risk, or significantly reducing the chance that it will occur. Risk avoidance aims to reduce the probability of it happening to zero. This will usually require making some adjustments to the original project plan.
Transfer: This involves transferring ownership of and risk responsibility for dealing with risk event consequences to someone else, for example, a third-party such as an insurer, or an outsourcing service provider.
Mitigation: If the risk cannot be avoided, it can be mitigated by taking action to reduce its probability or impact. It is crucial to balance the severity and probability of risks with opportunity and cost.
Contingency: A contingency plan is an alternative plan (Plan B), to be potentially deployed if a possible foreseen or exceptional risk event presents itself. It is a method of proactively planning for disruption.
Acceptance: If it is not possible to avoid, mitigate, or transfer a risk, acceptance is a response. After analysis, a risk management team may use an acceptance strategy for known risks. The justification for risk acceptance is that the cost to mitigate or avoid the risk is too high compared to the low probability of the risk, or its likely impact should it occur.
The risk approach must be communicated throughout the organisation and embedded into company culture and every process. Equally, it is critical to drive compliance with internal policies, legislation, and applicable standards which relate to particular types of risk. By integrating risk management with organisational processes, it becomes standardised at all levels. Maintaining continuous risk management training and certification for all leaders and employees increases awareness of the risks associated with their work.
