The Seven Steps to Implementing an Effective Risk Management Process

Vinod Menon
Vinod Menon
Chief Product Officer
Vinod Menon
Vinod Menon
Chief Product Officer

Risk Management Process is a methodology by which risks are formally identified, measured and treated to ensure that risk is avoided, transferred or mitigated. As part of the process number of actions and mitigations are carried out to reduce the likelihood of occurrence and the impact severity of the risk.

 The Risk Management Process includes the following steps:

  1. Create a policy
  2. Risk identification
  3. Risk assessment
  4. Risk Treatment
  5. Risk Recording & Reporting
  6. Risk monitoring and review
  7. Communication

Create a Policy

The starting point is the creation and setting up a well-documented policy for the risk management framework. The policy should clearly elaborate on the elements of the risk management framework and the process.

a. Risk Identification

After establishing the policy and setting the required environment, within which the firm operates, is the identification of individual risks. The comprehensive identification is crucial for the overall risk management process because a risk that is not identified at this stage will not be included in further analysis. Firms can use methods like PESTEL, IRM Wheel, Horizon scanning etc. to identify the risk.

b. Risk Assessment

Identified risks need to be put into perspective in terms of the potential severity of impact and likelihood of their occurrence. Assessing and categorizing risk, assists in prioritizing and filtering the risks. Risk analysis and evaluation are part of the risk assessment process.

c.  Risk Treatment

After the risk has been identified and analysed, firm’s management evaluates to determine which risks are to be treated and the method and priority for treatment. Whether the risk has to be accepted, reduced, transferred or avoided is decided and requisite action is taken.

d. Risk Recording & Reporting

Once all the above steps are completed, comes the part of how the recording has to be carried out. Depending upon the scale and criticality of the business line, management can decide if they want to carry out the risk management process in word and excel files or do they have to implement risk management software. So that recording and reporting are automated. Obviously, an automated system helps in better analysis and improves the quality of risk management.

e. Risk Monitoring & Review

The primary purpose of monitoring and review of risk by a firm’s management determines whether risks still exist, whether new risks have arisen, whether the likelihood or impact of risks has changed, and to reassess the risk priorities within the internal and external context. It helps to get feedback with regard to assurance over the efficiency and effectiveness of controls implemented to treat risks. It enables the firm to analyse and learn lessons from event successes, failures and near misses.

Other elements which form an important part of developing a risk management framework and implementing an effective risk management process include:

  1. Internal factors – The Risk management process and framework needs to be customised considering the firm’s process, people, products etc.
  2. External factors- As part of risk identification, various outside factors like regulatory, political, economical etc. to be taken into consideration.
  3. Communication – The success of a risk management practice depends on how well the same is communicated across the firm and if the firm is able to build a culture of risk.

Risk management is an important process that senior management should pay attention to. It is inevitable to have sound risk management practice and firms should have better strategies to deal with risks. The intensifying competition in the global markets has forced firms to focus on setting up a strong risk management program.

Need expert advice to implement an effective Risk Management Process in your organization. Talk to our expert here.

Recent Blog’s

Share

Explore more

Risk Management

Key Highlights of APRA`s Discussion Paper on Strengthening Operational Risk Management

Events of recent years like COVID-19, cyber-attacks, flood and storms etc. has reinforced the importance of managing and responding to operational risks. To ensure that …

Risk Management

An Integrated Risk and Resilience Framework – A Better Approach to Manage Uncertainty

Businesses across the globe have, in the last couple of years, seen exceptional uncertainty due to political tensions, economic turmoil, COVID-19 pandemic and others.   Markets …

Simple steps to Automate and Standardise your Risk & Control Self Assessment (RCSA)
Risk Management

Simple steps to Automate and Standardise your Risk & Control Self Assessment (RCSA)

Risk and Control Self Assessment process is a widely accepted methodology used by banks, financial companies, insurance companies and others to identify and assess the …

Key Risk Indicators -A Powerful Tool to Anticipate Your Risk Within the Enterprise
Risk Management

Key Risk Indicators -A Powerful Tool to Anticipate Your Risk Within the Enterprise

In simple terms, Key Risk Indicator (KRI) is a metric used to measure the level of exposure to risk. These are indicators that denote the …

Hongkong’s Regulations for Operational Resilience
Operational Resilience

Hongkong’s Regulations for Operational Resilience

On 22nd December, 2021 HKMA (Hong Kong Monetary Authority) came up with a Supervisory Policy Manual for Operational Resilience to provide Authorized Institutions (AI) with …

Irelands’ Financial Service Sector Guidance on Operational Resilience
Operational Resilience

Irelands’ Financial Service Sector Guidance on Operational Resilience

The Central Bank of Ireland`s objective of this guidance is to communicate to industry how to prepare for, respond to and recover and learn from …

New Operational Resilience Regulation
Operational Resilience

New Operational Resilience Regulation for Financial Institutions in United States (USA)

The Federal Reserve, the Central Bank of the United States in August 2021 has released a paper intended to help community banks assess threats when …

Process Mapping is an important step in building an Operational Resilience Framework
Operational Resilience

Process Mapping is an important step in building an Operational Resilience Framework

The Covid -19 pandemic has clearly shown two trends within firms: The intensified use of technology and Operations can be managed through digital work force …

What is Game-Based Employee Onboarding? Tips and tricks to implement the right gamification strategy
Game-based Learning

What is Game-Based Employee Onboarding? Tips and tricks to implement the right gamification strategy

Learning begins with joining. Effective Onboarding contributes to a newbie commencing with confidence, feeling supported, and acclimatizing much sooner. Conversely, employees who spend weeks and …

Strategies for Improving Banks’ Operating Efficiency
Digital Transformation

Strategies for Improving Banks’ Operating Efficiency

Banks occupy a place of pride because of its structure of undivided attention and contemporary functions. They have come an extended way from merely performing …

Get started with Digital Identity Verification
Digital Identity

Get started with Digital Identity Verification

In a growing interconnected digital economy, identity verification of an individual’s real-world identity against their digital one has become ever critical in fraud detection. The …

Growing Importance of Operational Resilience in the Digital Era
Operational Resilience

Growing Importance of Operational Resilience in the Digital Era

Operational Resilience assumes that things will go wrong, and it will force organizations to plan on how to recover from the disruption. It is a …

Why are organizations jumping onto the AI-enabled Identity verification bandwagon?
Digital Identity

Why are organizations jumping onto the AI-enabled Identity verification bandwagon?

Who has not experienced being asked to show some kind of government ID, be it to receive your courier, or check into a hotel, or …

What is Identity Proofing?
Digital Identity

What is Identity Proofing?

As per the Digital Identity Guidelines published by NIST, a US agency, Identity Proofing is verifying the claimed identity of an applicant by authenticating the …

New Amendment to KYC Regulation by RBI
Digital Identity

New Amendment to KYC Regulation by RBI – 10th May, 2021

In Jan 2020, Reserve Bank of India amended the KYC norms allowing banks and other lending institutions to use Video based Customer Identification Process (VCIP) …

5 Steps to a Successful Execution of a Digital Transformation Project
Digital Transformation

5 Steps to a Successful Execution of a Digital Transformation Project

Digital Transformation is bringing about a radical shift in the way you run your business, deliver services or manage your customers. The objective of digital …