A risk management framework is a go-to strategy for identifying existing and potential risks within an organization. It can also help businesses handle these risks if or when they arise. While there is no way to completely eliminate all risks, there are steps business leaders can take to minimize the likelihood of the business failing as a result of an incident. Creating an effective framework can help businesses protect their investment and earnings without disturbing their growth. When creating a risk management framework, there are several core components that every business should consider.
Components to Consider When Creating a Risk Management Framework
Identification
The most important component in a risk management framework is identification, which means to identify the risks that a company faces. This involves creating a list of all potential risks that a business faces, such as legal risks, operational risks, security risks, and strategic risks, among others. Once a list of risks has been made, they should then be properly categorized based on importance and level of risk, otherwise known as core or non-core risks. Risks that could affect a company’s ability to perform and achieve long-term growth are referred to as core risks. Risks that are able to be minimized or completely eliminated are known as non-core risks.
Measurement/Assessment
Risk measurement or assessment goes hand-in-hand with risk identification. This component focuses on both qualitative and quantitative methods of risk assessment. When you are measuring specific risk exposure, consider the effect of the risk on an organization’s overall risk profile. Know that some risks are easier to measure than others, but taking the time to perfect this component is critical to the success of your risk management framework.
Mitigation
Once your organization has properly identified and assessed your unique risks, it is time to decide how to best handle them. Ideally, companies will want to find ways to either eliminate these risks or minimize them to the best of their ability. Your organization will also want to consider how many core risks you are willing to retain. How a company handles risks can alter their risk procedure in the future and will encourage business owners to reevaluate and modify their risk management process.
Reporting/Monitoring
It is not enough to simply implement a risk management framework and walk away. Businesses must continually monitor their risks and maintain a risk contingency plan to ensure that the risk is contained. Many organizations rely on an annual review to continue optimal operation. By monitoring and gradually modifying a risk management system, companies can pinpoint where weaknesses form and make any necessary changes during times of review. It is important to realize that risk management is a continual work in progress that evolves over time and is never considered “completed.”
Governance
The final component to consider when completing a risk management framework is risk governance. This is the process that helps ensure that all employees continue to perform their given duties based on the needs outlined in the risk management framework. Risk governance provides organizations with an outline of what roles each employee holds, which staff members have authority, and what boards and committees must be addressed before core risks can be approved. If your workforce fails to perform the functions necessary to eliminate or minimize risks, your business may ultimately suffer.
Importance of Creating a Risk Management Framework for Your Business
Adopting a risk management framework has the potential to help businesses mitigate future risks without hindering growth. A strong risk management framework can offer organizations a number of key benefits, such as protection of assets, reputation management, and the optimization of data management. A risk management framework can also provide protection against losses of competitive advantage, legal risks, and business opportunities. Remember, an effective risk management framework should be more than a set of standards and rules. It should have the ability to deliver actionable results that make a real difference in how your business and workforce perform in the long-term.
Learn More About Risk Management Frameworks or Seek IT Assistance
No matter what industry your business is involved in, you are always going to face certain risks. This is simply part of doing business. However, how these risks affect your business can mean the difference between operating a highly successful business and running your business into the ground. As risk management can be a complicated subject to navigate, it is wise to seek the guidance of a professional with experience in risk management frameworks. To learn more about risk management frameworks or to inquire about professional IT consulting services for your business, contact Hartman Executive Advisors.
