Risk Management Policy - Proactive Framework

Risk exists in the operations and decisions of almost all organizations. Organizations of all shapes and sizes can benefit from undertaking systematic risk management processes, including governments, professional associations, and charities. This Hub will focus on profit-driven businesses and the role an effective Risk Management Policy can play in them achieving their objectives. Risk plagues all businesses, from large market players to small local entrepreneurs , and demands focused resources to counter effectively. It is not surprising that since the financial crisis of 2008 and the ensuing global recession, the global marketplace has placed an increasing emphasis on risk management.

There are threats to a businesses objectives internally, externally, revenue-side, cost-side, and so on. A risk management policy provides the framework for the company's risk analysts to understand which threats are the highest priority, how likely they are to occur, and what their impact could be.An effective risk management policy typically consists of four primary facets;

* Risk Identification
* Risk Avoidance/Transference* Risk Mitigation (limiting probability of occurrence and limiting impact)
* Action Plan

The secondary functions of a risk management policy are to establish lines of communication and jurisdiction between senior management and the risk analysis team, and to instill an organizational risk management philosophy throughout the organization.

Over the past weeks and months the world has witnessed a series of extraordinary events take place. The fall of a corrupt presidential regime in Egypt. A devastating earthquake in Japan. The commencement of a UN-lead military action in Libya. These are examples of not only unforeseeable events that can place considerable pressure on businesses globally, but also examples of events that are incredibly hard to prepare for. However, an existing risk management policy would provide an action plan that would mitigate some of the risks caused by extraordinary events. While a company's risk manager may not have prepared specifically for the effects of once-in-a-lifetime earthquake devastation, they would certainly have prepared actions to mitigate the specific risks this event caused. For example, a firm that is greatly exposed to the risk of a sudden appreciation of the Yen (one of many consequences of the recent earthquake) would have processes in place to remove, mitigate, or react to that resulting risk. A well-trained Risk Officer has a good understanding of what types of events can drive risks to the business and how likely those events are to happen, but they have an even greater understanding of what those risks are in general.

The complexities of risk management policy implementation require the skills, training, and experience of certified risk managers. These individual should also possess considerable industry experience, and exposure to the enterprise's entire operation. There are a growing number of professional business people seeking education, training, and certifications in risk management. It is also the responsibility of the organization to support those individuals who are willing to undertake this training and skill development.

Very few businesses can expect to avoid risk by simply 'getting lucky', and should implement effective risk management and risk mitigation processes. The need for risk management is more vital than ever for any organizations looking to achieve long-term sustainability and profitability.