Risk, as a generic term, has been commonly used in general conversation to indicate a chance of loss, harm or danger. This has lead to the notion that risk management is primarily about workplace safety. However, safety is only one aspect of risk management.
In a business context, risk should be part of daily decision-making – compliance, strategy, purchasing, employing and investing to name a few.
This applies to all businesses, from the one person sole trader to the largest multinational company. Unfortunately, many businesses appear to adopt the ‘ostrich’ approach to risk management possibly due to a lack of knowledge or appreciation of the potential liabilities the business could be exposed to.
This exposes the business to both regulatory and commercial risks.
Risk management is the process of identifying, assessing and managing three components:
- Compliance – complying with all legislation, Standards and business/organisation policies
- Governance – processes that demonstrate compliance
- Risk – uncertainty that relates to events or expected outcomes occurring
To be effective, risk management requires a systematic approach that is measurable.
The International Risk Management Standard (ISO 31000:2009) outlines the risk management process.
The Standard advocates 7 steps:
- Establish the context
- Risk identification
- Risk analysis
- Risk evaluation
- Risk Treatment
- Monitor and review
- Communication and consultation
Implementing an effective risk management system is likely to lead to better decision-making and the identification of opportunities that would be missed.
If you would like more information about risk management and your business or organisation contact us today.