Are unforeseen risks lurking inside your business or organization?
Unfortunately, risks and uncertainties can derail your business objectives at a moment's notice, and unless you're managing and mitigating potential risks, your company could be taken by surprise.
For example, one organization found itself in the middle of a serious lawsuit after creating an advertisement that mislead consumers into taking a cruise in the middle of the COVID-19 pandemic. In an interview, one employee claimed that she was told to create a campaign that was "misleading, fraudulent, unethical."
The fact is, failure to create and implement a risk management process could put your organization in serious jeopardy. No matter how big or small your organization is, you need to have a risk management process in place to protect your business from public disaster or ruin.
How to Build a Risk Management Process in 6 Steps
Building a risk management process is tough. There are many factors to consider and data you’ll need to gather to make sure you’re identifying all the potential risks surrounding your company.
From the C-Level Executives down to the hourly or contract employees, you’ll find risks that need to be addressed. There are risks with every project, product, and process, and it’s your job to sniff them all out and make sure they don’t have lasting adverse effects on your business or workforce.
Are you ready to protect your organization from risks at all levels? Follow these 6 steps to help you get started and sign up for our free risk management training at the bottom of this page before you go.
1. Develop Risk Taxonomy
Risk taxonomy is a set of comprehensive risk categories your organization uses to consistently identify and classify risks in all areas of your organization.
For a risk management process to be effective, you need to establish a risk taxonomy and use it religiously throughout your company.
To develop risk taxonomy, you’ll need to create a list of the different categories of risk. Use the following list of categories to get you started. You can customize your risk taxonomy by adding or removing categories from this base list.
- Interest Rate
- Conflict of Interest
- Complaints Management
- Business Processes
- HR Management
- Governance and Strategic Direction
- Information Management
- Talent Acquisition
- Talent Management
2. Identify Material Risks
A material risk that, either alone or when grouped together, has an impact on the organization on either a qualitative or quantitative basis.y. Identifying material risks is crucial for avoiding critical situations.
Implementing a regular process for comprehensively identifying all material risks should be a top priority. You’ll need to identify these risks across legal entities, business lines, and exposures at a minimum of once per year.
Examples of material risks include:
- Financial loss as a result of unauthorized trading or transactions
- Loss of crucial suppliers or customers
- Loss of customer data
- Onboarding clients without proper identity verification
You'll have to come up with a plan to address each of these risks that outlines the controls you'll put in place to mitigate and manage these risks, as well as policies and procedures to guide staff on how to execute these controls.
3. Perform Risk Assessment
Performing a risk assessment is the next step after you’ve documented all risks associated with each risk category you chose for your risk taxonomy.
When performing a risk assessment, you’ll need to review each risk and assess them carefully for:
- The likelihood of occurrence
- The severity of the potential consequences
- The quality of risk management activities
You can create your risk assessment template using Excel, Google Spreadsheets, or a similar program. Depending on the size and complexity of your organization, it may be more efficient to explore the use of technology. This also helps promote transparency and aggregated reporting.
4. Create Risk Response Plans
Depending on the severity of the risk and its likelihood of occurring and the quality of risk management activities, you’ll need to create a plan of action and designate who is responsible for initiating and executing the plan.
You’ll also need to determine how and who is going to monitor the risk and alert the person who decides when the plan should be enacted.
Your risk response options include:
- Accept the risk
- Mitigate the risk
- Avoid/transfer the risk
Several templates are floating around the web that you can use to help you create risk response plans, but you can use ours to get started. This is another area where the use of technology can be helpful in tracking, monitoring, and managing the response plans.
5. Implement Risk Response Plans
Next, you’ll want to implement risk response plans for the risks you’ve identified that need immediate attention. Those risks include the ones you’ve labeled with the highest likelihood of occurrence and severity.
At this point, you’ll already have your plan created, and you’ve designated staff members to initiate and carry out the plan. You just need to give them the ok to take action and provide them with time to see it through.
If you haven’t done so already, make sure you choose someone to monitor the execution of the plan and report back to you within a predetermined time frame.
6. Monitor and Report
Ensuring your risk response plans are executed correctly and producing the expected results, you’ll need to monitor the execution closely.
Risk reviews should be a standard part of your typical meeting agenda, and you should designate one person or group responsible for producing the reports.
Reporting can be done using KRIs and other measurement tools. Use these tools to generate risk reports that update you on:
- Changes in risk exposure
- Adherence to approved risk limits
- Status of issue management status
- Emerging risks
- Key initiatives/projects
The Role of Technology in Building a Risk Management Process
A compliance technology architecture is required in the pursuit of effective risk management and regulatory compliance. In short, compliance risk management technology enables organizations to perform and streamline related risk management processes, including reporting, analyzation, and modeling.
Our technology provides an immediate impact in the following areas:
- Regulatory change management
- Access to searchable regulatory library
- Risk and control mapping
- Compliance deadlines
To learn more about our risk management technology, schedule a free preview.
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.