Risk Management: Top 7 Risk Assessment Tips
- September 12, 2018
- Quantivate
Risk is everywhere. Success in business often comes down to recognizing and managing potential risks and opportunities. The risk assessment process helps you focus on the risks that really matter in your workplaceâthe ones with the potential to cause real harm, whether physical, financial, legal, or otherwise.
Performing regular risk assessments is an important step in protecting your workforce and your business, while also ensuring youâre complying with applicable laws and regulations.
If you donât have a consistent risk assessment methodology in place, these seven steps will help you get on track to a risk-aware culture and more effective risk management practices.
1. Identify & Assess Risks
The types of risks organizations face are wide-ranging. Some are obvious, like workplace health and safety issues or legal liabilities. Other categories may be less intuitive, such as regulatory compliance or reputational risk.
Without a risk management process that connects risk to your actual business processes and outcomes, you may be overlooking opportunities to make more strategic decisions.
2. Know the Numbers
The management principle that âyou canât manage what you donât measureâ also applies to risk. Measurement and valuation are crucial for cost-effective risk management and informed decision-making, but theyâre also difficult to assess without the right tools and processes in place. Gathering and tracking data such as quantitative and qualitative risk calculations, scenario-based risk scoring, and key risk indicators provides a more complete, unified view of organizational risk exposure.
3. Make Connections
Identifying, quantifying, and managing risk requires an understanding of how risks correlate and interact across your organization. For example, exposure to credit risks may also affect market price risks, whereas operational risks such as fraud may create legal and reputational risks. Recognizing that risks interact between business activities is foundational for effective enterprise-wide risk management.
4. Continually Re-Assess Risks
Your business changes and evolves, and so do risks. Market conditions and volatility levels, third-party relationships, physical environments, geopolitical situations, and many other circumstances that affect your organization are all subject to shifts, whether sudden or slow-moving. Exposure to risks that result from business activities may also change.
To avoid getting caught by surprise by a changing risk landscape, proactive risk management requires reevaluating risks on an ongoing basis.
5. Commit Adequate Resources
Effective risk management also requires considerable expertise and resources, from basic risk control, to compliance and governance activities, to advanced quantitative risk analysis. As high-profile business failures have demonstrated, the cost of losses due to risk management weaknesses or lapses can be catastrophic. For most businesses, investment in risk management capabilities has a high payoff.
6. Reduce Exposure
Risks arise from exposure. A commonly accepted definition of risk is âexposure to uncertainty.â Reduce the exposure, and you likely reduce the risk.
Business processes and commercial activities can have a significant effect on risk levels, so cultivating risk awareness in those areas can lead to opportunities to reduce current and future exposures.
7. Create a Risk-Aware Culture
Educate the organization in practical aspects of risk management, particularly the most senior business executives and board of directors. Risk management responsibilities should be clear.
Effective risk management â whether the result of institutionalized risk policies and procedures or based on internal risk management expertise â is typically a key factor in successful businesses. Training and building awareness can lead to a risk management culture that will drive business strategy and performance.
Does your organization need an enterprise-wide risk management program?
Quantivate can help you develop a roadmap to make ERM part of your culture. Our enterprise risk management software aligns your entire organization to the same strategic goals, empowering smarter decision-making. Explore our software and service options to learn more.
Further Reading & Risk Management Resources:
Do Your Risk Assessments Include Vulnerability and Velocity?