Risk management is a structured and planned approach to identifying, evaluating, prioritising, and mitigating any risks that could threaten the goals of an organisation. The risk management process plays a crucial role in improving an organisation's operational efficiency and capabilities. Rather than being viewed as a conservative approach, risk management can be an immense factor in an organisation's growth and achievement. Organisations should understand that accepting and managing risks strategically may lead to new prospects and better resilience.
This blog focuses on the key elements of an effective risk management process and guides organisations on key factors to consider.
Importance of a Risk Management Policy
The risk management policy is used to define an organisation’s approach to risk management, including how risks are identified, how they are prioritised and how they are managed or accepted. This creates the foundation of the risk management process and is a key step for organisations looking to effectively manage risks and strengthen their ability to recover in an ever-changing business environment.
Developing and documenting the policy can include the following considerations:
• A detailed understanding of the scope of the organisation, ensuring alignment with organisational requirements and overall strategic objectives.
• The responsibilities for managing the risk management process at an organisational level for relevant roles, such as the Board of Directors, senior leadership and control owners.
• How the risks are going to be identified (e.g. periodic organisational risk assessments, vulnerability scans or vendor risk assessment).
• A rating system considering the possible impact and likelihood of each identified risk and how these can be used to rate or classify the risks (i.e. a risk matrix).
• Risk mitigation or treatment methods tailored to the nature of each risk and in line with the organisation's overall goals and risk appetite.
• Requirements for logging risks identified, risk ratings, risk mitigations and risk owners, as well as any other key details.
Identification of Risks
Engaging stakeholders at all levels of the organisation promotes teamwork and leverages the different experiences with teams, aiding in compiling a thorough risk register. The risk analysis from the stakeholders should consider possible risks from a variety of areas, both internally and externally, such as financial, operational, strategic, compliance and reputational. The idea of looking for risks can seem daunting, and cause some apprehension, but this process is intended to help the organisation improve its security and stability and achieve success.
Assessing and Classifying Risks
Once the risks are identified, it is important to conduct a risk assessment for the identified risks. The risk assessment should include a detailed assessment of each identified risk to determine its impact, likelihood and severity based on the metrics defined in the risk management policy. Based on these metrics, risks are classified. This enables organisations to proactively design and implement targeted mitigation methods, enabling a proactive approach to risk management based on risk classification.
Continuous monitoring and periodic evaluations of risk assessment results allow an organisation to maintain their risk profiles and to quickly adjust to changes in the internal and external business environment. While the industry standard is to conduct a risk assessment annually, risk assessment frequency should be determined based on the organisation's specific needs.
Establishing Risk Mitigation Strategies
Organisations use a range of risk mitigation methods to handle the complicated nature of recognised risks. These treatments are adapted to the classification of each risk. Common methods include:
• Risk avoidance: Organisations avoid actions or circumstances that could create significant risks. This method works especially well for high-impact risks where the possible consequences outweigh the potential benefits.
• Risk reduction: Applying procedures to reduce the probability or consequence of a risk, which is frequently accomplished by improving the existing processes, the development of technology, or the allocation of resources to manage those risks.
• Risk transfer: The transfer of risk responsibilities to third parties, generally via third-party vendors or contractual arrangements. This method can be especially useful for financial concerns or those involving external factors.
• Acceptance: An approach that is used when the possible risk is deemed acceptable within set limits (i.e. the risk appetite), and organisations prefer to deal with the potential impacts without engaging actively. The effective use of such measures depends on an up-to-date knowledge of the identified risks and requires strategic alignment with the organisation's goals.
The combination of these risk mitigation methods encourages proactive and adaptive risk management processes. This can help an organisation's resilience in the face of the unpredictability of the modern business environment with the emergence of technology.
Continuous Monitoring of Risks and the Importance of a Risk Register
Risk management requires regular monitoring and reporting of identified risks. Establishing an effective risk management plan for monitoring identified risks helps organisations anticipate potential risks and remain proactive. Regular risk assessment evaluations and improvements are required to reflect changes in the consequences of risks in the present environment of the organisation.
The risk register that logs all identified risks and key information related to them should be updated and monitored to manage the identified new risks and assessment of risk mitigation strategies for the existing risks. Open and transparent reporting procedures keep stakeholders up to date on changes to individual risks, allowing for more immediate action on identified risks.
Lastly, managing an organisation's risk management process is a constantly changing and diverse operation. Organisations that take a proactive and strategic approach to risk management, while building a risk-aware culture, are likely to be better positioned to turn challenges into opportunities and achieve long-term success in a time defined by rapid changes in technology.
References
2017 Trust Services Criteria for Security, Availability, Processing Integrity, Confidentiality, and Privacy (with Revised Points of Focus – 2022)
Disclaimer: AssuranceLab performs the role of an independent auditor across hundreds of client environments. We do not perform technical roles or assessments and this content is not intended to be comprehensive on those technical or detailed aspects of cybersecurity. You should perform further research and seek professional advice as appropriate before acting on any of the information contained here.