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How to Build a Risk Management Framework

Are you frustrated with your organization's current approach to compliance and risk management? Are you looking for a more efficient and cost-effective way to manage, mitigate, and proactively respond to risk at scale?

Unfortunately, traditional approaches to regulatory compliance and risk management are ineffective. You see, large firms rarely put your organizations first. These firms don't offer any kind of strategic value. Additionally, solutions are highly manual and require a major investment of your time, resources, and capital.

Today, your organization must build and implement a risk management framework. However, without the right guidance, building a risk management framework is easier said than done. As an industry leader in regulatory compliance and risk management, we can guide you through this process with ease.

What Is Enterprise Risk Management?

Enterprise risk management (ERM) is the process of identifying, assessing, measuring, managing, monitoring, and reporting risks at all levels of your organization. ERM includes, but is not limited to, strategic risks, compliance risks, legal risks, credit risks, market risks, liquidity risks, interest rate risk, operational risks, and reputational risks.

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Image Source: Compliance Core

What Is a Risk Management Framework?

Monitoring risks and deciding when to take action is simplified and streamlined with a risk management framework that gives you a process to follow. You can choose to use a risk management framework built by someone else or create your own.

Creating a custom framework is a better option than using a pre-built template with worksheets, but pre-built frameworks can be an excellent place to start.

The downsides to pre-built frameworks are that they won't take into account the unique risks your organization encounters, or they may be incomplete — causing risks to slip through the cracks until significant problems occur.

Since a custom framework is the preferred option for monitoring and assessing your company's unique risks, let's look at the 6 steps you'll need to follow to create your first risk management framework.

How to Build a Risk Management Framework

Building a risk management framework is challenging. There are several factors to consider and data you’ll need to gather to ensure your framework covers all the risks associated with your organization's activities.

Follow the 6 steps below to create your first risk management framework, and don’t be afraid to contact our experts for a live Compliance Core preview — you don’t have to do it alone.

Step #1: Identify Your Risks

Identifying your risks is the first step because you can’t create a plan for managing and mitigating risks when you have no idea what they are.

To identify the risks surrounding your organization, you need to consider each risk your company might face and make a list of them all. Use the following table to help you get started.

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Image Source: Compliance Core

Step #2: Assess Areas of High Risk

Now that you know the risks for your company, you'll need to assess the areas with the highest risks.

Organizing and prioritizing each risk in order of severity, the likelihood of it occurring, potential consequences, and how fast corrective action needs to happen helps you discover your highest risks so you can plan accordingly.

You have several options for recording and documenting this information, but we'll show you how to use a risk matrix to get you started.

Utilizing a risk matrix helps you assess areas of high risk by giving you a format for grading them. The risk matrix designates a number corresponding to the level of risk involved as well as the probability of occurrence.

Step #3: Create an Action Plan

Simply knowing what your risks are and prioritizing them is not enough. You'll need to create an action plan for your highest risks, so there's a plan of action in place should it occur.

Don't waste time creating action plans for every risk on your list.

Start with the highest-ranking risks by the likelihood of occurrence and severity and develop a action plan for each one. Your action plan should include the following information:

  • Who is responsible for identifying the risk?
  • Who is responsible for initiating the plan for risk mitigation?
  • What actions do these people need to take to identify and mitigate the risk?
  • What’s the timeline expected for mitigation efforts to take place?

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Step #4: Implement a Culture of Compliance

Implementing a culture of compliance means indoctrinating your entire workforce with risk management and compliance behaviors.

What is risk behavior? It’s behavior that includes following a predefined risk management process with the shared belief that it’s crucial to the organization as a whole. Compliance behaviors are understanding and complying with local, state, federal, and national laws.

Implementing risk management and compliance policies and procedures is the first place to start when creating a culture of compliance. Simply implementing the new policies won’t be enough, though. You’ll need to ensure your leadership team is setting a good example by practicing what they preach.

It’s common for companies to believe creating a risk culture starts from the top of the company (Board and C-level executives) down to the bottom (leadership to hourly or contractor staff) or from the bottom up — but, in reality — it needs to happen simultaneously and meet somewhere in the middle.

Step #5: Monitor, Test, and Report

Managing risks is not a “one time and done” type of thing. You'll need to continuously monitor and periodically test compliance-related processes and ensure they're effective. Monitoring processes and reports generated frequently helps you pinpoint control weaknesses while still minor and easy to fix.

You’ll need to invest in software and specialist tools that allow you to gather data and generate reports.

To find out what tools and software you need to do your evaluating and reporting, it’s best to consult a professional, which brings us to the final step.

Step #6: Consult with a Professional

Getting the right tools and software is crucial for ensuring your efforts aren’t wasted. That’s why we offer the advisory services and software you need to monitor and manage regulatory change and mitigate infractions.

Our services and software are:

  • Scalable
  • Data-Driven
  • And Provide Your Organization With End-To-End Compliance

“Engaging the services of Compliance Core provides you with the benefit of their breadth of experience in tax, legal, regulatory risk, and compliance issues.” - Nana Y., Compliance Officer for Leading Global Bank

Contact us to have our experts help you create and implement a risk management framework and sign up for our self-paced risk management training below.

How Mature is Your Compliance and Risk Management Program?

Today, many businesses and organizations choose to outsource aspects of their risk management effort. As a trusted advisory and managed service provider, Compliance Core delivers risk management and regulatory compliance excellence. Our services are designed to simplify compliance risk management while retaining efficiency and effectiveness.

Compliance Core has seen first-hand how organizations run operational and compliance programs. Over the years, we have helped industry-leading businesses and organizations to streamline and transform regulatory compliance management processes. Our approach drives a more efficient, strategic, and proactive process that supports organizations’ efforts to respond to evolving regulations and comply with regulatory obligations.

To quickly assess your risk management and compliance program, we’ve developed a short quiz. Use this as an opportunity to identify risk management and compliance gaps. After the quiz, you’ll be given an opportunity to connect with us and discuss next steps towards your risk management and compliance goals.

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Published by Jacqueline Maduneme July 8, 2020