How Can Risk Management Benefit Your Organisation?
Risk Management
Risk management is the process of identifying, evaluating, and then prioritising those risks for reduction or mitigation. It may not always be possible to fully mitigate the risk but we should be able to reduce the level of risk posed. As a company, you should always be aware of the risks that your organisation may be exposed to and have an understanding of how you can protect against such risks. As an experienced risk management consultancy, we can help assist your organisation to protect against risk.
How Can Risk Management Benefit Your Organisation?
Regardless of the industry that you may operate in, there will always be a level of risk and this risk could actually be highly damaging to your organisation if left untreated. By identifying the risks your organisation is exposed to then you are able to protect against those risks and ensure business continuity. Our aim is to ensure that your organisation doesn’t fall foul of the risk it may be exposed to.
Risk Identification
The first stage of this risk management plan is that of risk identification, risk identification could be described as taking stock of an organisation’s risks and vulnerabilities and then raising awareness of these risks within the organisation (Haselkorn, Khaykin and Eaton, 2015). This is the first stage of risk management as an organisation you must identify and acknowledge the risks before progressing through the risk management cycle, in other words, you must know what risks the organisation faces before anything else can be done.
As your support consultancy, we can assist with identifying sources of risk, areas where that risk will cause impact, the causes, and also the potential consequences of such risk. It is worth noting that the aim is to identify risks not just under the control of your organisation, but also those that are not under the control of the company.
PESTLE analysis will allow us to break down your organisation in order to identify the entire range of external risks that your company may be exposed to, this will include political, economic, social, technological, legal and environmental areas of operation. We can use PESTLE to simplify the identification stage, and plan each of the risks associated with each aspect of the PESTLE model as below:
Political – risks could be linked to changes in government, government sanctions in the UK or in other countries
Economical – risks could be linked to staff costs in country, or to conversion rates and/or state of the global economy
Social – risks could be linked to changes in the demographic of the potential market, changes in market needs and so on
Technological – risks could be linked to technological advances by competitors, availability of certain parts, changes in technology
Legal – risks could be linked to changes in legislation in the country and overseas, breach of contract or copyright infringement
Environmental – risks could be linked to changes in environmental policy, changes in manufacturing processes affecting the local environment
We will also look at internal risk identification by addressing the organisational objectives and the risks linked to each, a risk may be relevant to more than one of the organisation’s objectives and its potential impact may vary in relation to different objectives.
The tools used to identify risks include a self-assessment approach whereby departments will review their activities with the assistance of our risk consultant, in order to identify potential risks associated with those activities, it is worth noting that such activities will be linked to the organisation’s objectives. All activities and risks identified will then be documented to allow for a review of such risks by your senior management team.
Risk Assessment
In terms of risk assessment, then we can either adopt a top-down approach or a bottom-up approach to conducting risk assessments. Each option has advantages and disadvantages, for example, a top-down risk assessment exercise will tend to focus on risks related to strategy, tactics, operations and compliance in that order. A bottom-up approach may allow for more focus on actual internal operational risks and this would be due to being conducted at the grassroots level whereby those responsible for the risk assessment have much more experience and are more interwoven with the operational aspects of your organisation. This means that both a top-down and bottom-up approach would be of benefit as this would ensure that the strategic risks and the everyday operational risks are identified and assessed, it would be of benefit if a senior manager was the operational link between these two variations as this would ensure that any variances between board and management level were bridged.
Qualitative and quantitative assessments can also be conducted in order to cater for differing departments within your organisation, including manufacturing through to design. Techniques to be adopted in the risk assessment stage are workshops and audits, workshops being actioned at an operational level and to include brainstorming sessions with a view to identifying additional areas of risk at the departmental level. Audits are to also be actioned with guidance from the board level to ensure that guidance from a strategic level is included in any form of auditing, including methodology and overall culture.
Risk Mitigation
We will now discuss risk mitigation measures that may benefit your organisation, which would be based on the identified risks. In short, risk mitigation is the process of reducing the severity and or seriousness of the risk, risk mitigation can otherwise be known as risk reduction. Once we have identified and assessed the risk to your organisation then we are able to plan, implement and monitor our risk mitigation strategy with full input from you.
With any identified risk then we must take into account the probability of occurrence and also the severity of the consequence of the risk being realised. Once we have assessed and understood these factors then we are able to begin the risk mitigation process and to also then identify where such risks lay in terms of mitigation and management and also in terms of the level of involvement from within your organisation. Not all the risks identified will need to be referred to the board although those that are will either have been identified as strategic risks and/or highlighted due to their severity.
There are a number of risk mitigation responses and these include tolerate, treat, transfer and terminate, also known as the 4 T’s model. Risks that are of a low likelihood and low impact would relate more to the tolerated response. Whereas risks that are high likelihood and low impact, then these may be responded to by being treated.
To further understand the four responses, let's take a look below:
Transfer – The risks that your organisation may face could be varied although in terms of the transfer response then if that risk has a low likelihood but the impact could be significant then we would look to transfer the risk or otherwise share such a risk. This can be achieved through insurance or by utilising sub-contractors for specific areas of either design or manufacturing.
Tolerate – You may deem that some risks can be tolerated and these would identify themselves on a risk matrix as potentially low impact and also a low likelihood, this means that your organisation including stakeholders are ready to bear such risks and this may be due to the overall strategic objectives of the organisation.
Treat – In terms of treating risk then we would identify the risks that do have a likelihood to occur although such risks would cause a low impact, treating risk can be seen as using risk reduction measures to reduce the likelihood and thus reduce the overall opportunity of that risk being realised.
Terminate – Some organisations will have risks that are of both a high likelihood and also that will have a high impact if such a risk is realised, in this case then any course of action involving that risk is to be terminated. This means removing the risk even before it has a chance of occurring. An easy example would be the risk of sending your employees to a high-risk country where there would be a high risk of danger to them, risk termination would suggest that not sending them at all would be a good way to terminate that risk.
Risk Tracking and Reporting
Risk tracking is the activity of systematically tracking and evaluating the performance of risk mitigation actions against established metrics throughout any type of process. For any organisation then risk tracking is a critical aspect of the risk management process, and will ensure that any risk mitigation measure implemented is continuing to remain effective throughout its life cycle. If through risk tracking, it is clear that a risk mitigation measure is not continuing to be effective then the risk manager (or the manager that owns such risk) is able to address the risk mitigation measure in order to make it more effective and this can be achieved by replacing the risk mitigation measure and/or editing the measure to ensure that it fits the risk completely. Again, we can help support your organisation in this process.
There are numerous ways in which an organisation are able to track risk. The three main methods that may be used include:
- Using a risk matrix to track whether risks are exceeding or bypassing the likelihood and/or impact, if it is deemed that risk levels are increasing past identified levels then it is clear that a new assessment has to be completed and that mitigation measures or control measures reflect such changes.
- Interim reviews of the organisation and potential risks, based on the current risk matrix, will allow managers to continually assess risks to the organisation by using the current risk matrix as a baseline and point of reference.
- Monitoring risk mitigation plans and assessing their effectiveness through the life cycle of the organisation and the identified risk, and by doing so tracking the risk and identifying changes in the variables of such risk.
In terms of risk reporting then there are four categories of reports in terms of risk management activities, these are established procedures, action plans, incident reports and performance reports. Reporting of risk has become increasingly important in the last twenty years and this is mainly due to the responsibility that organisations have to identify and mitigate risks that may cause adverse effects, especially with external pressure from the government and other agencies.
