Businesses are increasingly concerned with the need to Identify risk associated with the future, to enable continual improvement in decision-making and increasing mitigation measures.
The main elements of the risk management process as shown in Figure 1 are as follows:
- Communicate and consult Communicate and consult with internal and external stakeholders about the process as a whole and at each stage of the risk management process.
- Establish the context, Establish the external, internal and risk management context in which the rest of the process will take place. Establish the criteria against which risk will be evaluated. Define the structure of the analysis.
- Identify risks Identify where, when, why and how events could prevent, minimize, delay or improve the achievement of the objectives.
- Analyze risks Identify and evaluate existing controls. Determine the likelihood, severity and the resulting level of risk.
- Evaluate risks Rank and priorities the risks to assist decision-making regarding the extent and nature of treatments required.
- Treat risks Develop and implement appropriate risk treatment strategies to address the risks.
- Monitor and review Monitor the effectiveness of all steps the risk management process to ensure continuous improvement.
- Provides a structured framework for more effective strategic planning to ensure maximizing of opportunities and minimization of losses.
- Widens management perspective and encourages initiative and pro-active behaviour.
- Contributes to improved organizational efficiency and effectiveness.
- Optimizes the use of resources.
- Promotes greater openness in decision-making and improves communication.
- Provides senior management with a concise summary of the major risks affecting the organization and a mechanism to ensure that appropriate resources are directed towards areas of high risk.
- Provides a framework for ensuring that unavoidable risks are adequately insured.
- Provides an effective and systematic approach which enables management to focus on areas of risk in their operations.
- Improves the level of accountability in the organization.