An effective risk management program is crucial for organizations to defend themselves against potential threats and minimize potential losses.
Keeping up with the continuously changing threat landscape, as well as regulatory and economic uncertainty, is at the top of many business executives' minds. According to a recent PwC Pulse Survey, 75% of risk executives agree that they can’t keep up with a rapidly changing regulatory environment, and almost as many (74%) can’t keep up with the rapidly changing economic environment despite investments and improvements in risk management.
Creating and regularly updating your organization's risk management plan and strategy must be part of your normal course of business to help ensure that your organization does not fall behind in this rapidly changing environment.
What Is Risk Management?
Risk management is the process of identifying, analyzing and mitigating threats that can negatively impact your organization. Risks originate from many different sources, including cyberattacks, accidents, natural disasters, technology failures, and management or employee errors.
According to Protiviti’s Executive Perspectives on Top Risks for 2024 and 2034, the top 10 risks in 2024 include:
- Economic conditions, including inflationary pressures
- The ability to attract, develop and retain top talent, manage shifts in labor expectations, and address succession challenges
- Cyberthreats
- Third-party risks
- Heightened regulatory changes and scrutiny
Any risks, especially in these categories, must be understood so they can be properly managed.
Organizational Risk Management Procedures
A successful risk management program must meet legal, contractual and ethical standards and monitor any risks that may violate regulatory requirements. By committing resources to managing these risks, an organization can ensure continuity and more easily achieve its goals.
There are several steps in the organizational risk management process to consider when running a risk management program:
Risk Identification
The first step in the organizational risk management process is identifying all risks to the organization. Reach out to stakeholders across the enterprise and include third-party vendors and suppliers. As risks are identified, capture them in formal documentation and include information on each risk, such as likelihood of occurrence, business impact and owner. This will make it easier to prioritize each risk when creating mitigation plans. At this time, consider creating a committee comprised of senior leadership who can review all risks and approve the use of the resources necessary to properly address them.
Risk Assessment
Once all risks are identified, determine the likelihood that each risk will be realized and its potential impact on the organization. Consider using a three- or five-point scale to rank each risk and a different metric that states the potential impact. These values can then be measured to determine priority.
Prioritize and Create Mitigation Plans
Prioritize all risks based on the risk assessment. This will help determine when and how they will be fixed. At this point, start considering workable solutions to mitigate every risk. There are several treatments that can be applied to each risk, as senior leadership may choose to accept a risk if the impact is very low.
- Risk Acceptance: If the actions needed to prevent or mitigate a risk outweigh or are more expensive than the potential impact on the organization, the risk committee may decide to accept the risk and carefully monitor risk factors.
- Risk Avoidance: Risk avoidance is an option that involves removing something that poses a risk or not participating in an activity that can pose a risk. This strategy is typically used for one-time activities rather than addressing long-standing risks.
- Mitigating Risk: Mitigation involves implementing controls and action plans that reduce the likelihood of a risk occurring and its potential impact. This is a commonly used risk treatment.
- Transferring Risk: Transferring a risk means outsourcing to a third party or insuring. Some examples are leveraging cloud-based services with high levels of up-time or purchasing cyber insurance.
Implement Controls
Once risk mitigation plans are reviewed and approved and resources are available, controls can be implemented. Consider creating a program that monitors the progress of these activities, one that allows the organization to track progress and expenses. Ask that program managers regularly report on progress to the risk review committee composed of senior leadership so these leaders can provide direction and access to resources as needed.
Monitor
Once controls are implemented, they should be regularly tested to ensure their effectiveness. Factors such as new technology, a change in process or the onboarding of a new vendor can change the effectiveness of a control. Establish recurring risk assessments that can serve as a program to monitor all controls. Reports should be regularly presented to senior leadership.
Organizational Risk Management Templates
Effective risk management programs maintain living documents about various aspects of the program to properly identify, assess, monitor and report on risks. Below are several documents to consider maintaining as a part of your organization’s risk management program.
- Risk Management Plan: The risk management plan details all organizational risks and indicates how they must be mitigated. Mitigation plans will include details on the actions taken, timeline(s) and owner(s). With a detailed written plan, everyone can be aware of organizational risks and how they are being managed.
- Risk Register: A risk register (or risk log) is an inventory of all risks identified within the organization. Typical descriptors in the risk register include an ID number, risk description, impact, priority, mitigation plan summary and owner. As a high-level summary of all risks, a risk register is typically used in reviews with auditors and senior management.
- Risk Assessment Matrix: A risk matrix is a visual tool used to evaluate and prioritize potential risks to the organization. Typically, a risk matrix is laid out on two axes, with the likelihood of a risk occurring on one axis and the severity of the risk impact on the other. The visual is similar to a heat map, with the risks that have the lowest likelihood and impact being green and those risks that are higher in likelihood and severity colored from yellow to orange to red (for those risks with the highest likelihood and severity).
Organizational Risk Management Tools: Key Risk Indicators
As a part of a risk management program, well-governed organizations leverage key risk indicators (KRIs) that can provide risk exposure of current or potential risks that can negatively impact business operations.
KRIs provide a data-driven view into the controls your organization has implemented to manage risks, allowing you to build a stronger risk mitigation plan.
Developing Key Risk Indicators
Consider the following steps when creating meaningful indicators for your organization:
- Create Clear Business Objectives: Before creating any KRIs, list the organizations’ key objectives and risks that could threaten those objectives. For example, operational objectives could be consistent on-time delivery, high customer satisfaction and low employee turnover.
- Define Relevant KRIs: Create at least one KRI for each objective. All KRIs should be measurable and actionable. These KRIs will be monitored and reported, so make sure to review them with all relevant stakeholders.
- Set Thresholds: Define specific points for each KRI that indicate a change in the level of risk. Although risk levels may change, this may not necessarily trigger any action, so be sure to add triggers that indicate when an action must be taken.
- Implement Data Collection Process: Clarify the data type and source for each KRI. If collected manually, indicate who will be collecting the data and how often. If leveraging technology, understand the process as well as who will be analyzing the data.
Just as risks and controls are regularly monitored and updated, KRIs need to be monitored and regularly reviewed with stakeholders and senior leadership. Regularly communicate the status of the most important KRIs with all employees to create awareness and foster a culture of compliance.
Creating a Culture of Compliance
Integrating risk management and compliance into your organization's culture will build trust, reduce risk, and help your business meet and exceed its goals. Building this culture requires strong leadership, proactive thinking and a practical approach.
Compliance starts at the top. Demonstrating a clear commitment to following policy and regulations will set the tone for everyone else. Leaders must demonstrate commitment via everyday actions — showing this commitment through their work — as opposed to seeing compliance as an obligation.
Continuously train and educate all employees so they are aware of organizational risks and compliance requirements and how these risks and compliance requirements apply to their daily workflow. Consider tailoring training so those in specific roles can apply what they learn to the work they do within the organization.
Lastly, the compliance program should be regularly assessed and audited to help identify gaps and provide valuable insights for improvement. By proactively seeking out weaknesses, organizations can demonstrate their continued commitment to managing risks.
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