Going Through an Effective Risk Assessment Process

Efficient enterprise risk management is very vital when you are working in a regulatory environment that is all high stakes in nature. It is more of a necessity than a luxury. Regulators as well as rating agencies have expectations that companies possess a good understanding of their individual risk profiles. They also expect that companies have put together an apt governance structure so that risks can be mitigated.

Having said that, it is impossible for companies to have a complete understanding of the potential risks in an operation. So assessing risks is important. Here are the steps involved in going through an effective risk assessing process.

Gain an idea about the risks in a company

Firstly, you should have a thorough understanding of what you consider a risk. This means anything that influences your ability to obtain goals in a negative manner. You need to gain an understanding of the goals and objectives of a company. Based on this, think about the risks involved. Look at insurance risk as well as operational risks.

Put together a risk library for your company

After you have conducted this risk analysis, you need to put together a company risk library. This library outlines a framework for risk assessment processes. It defines as well as summarizes the risks that a company is exposed to. This works to encourage discussions of definitions as well as risks. It also promotes consistency. You can divide your risks to manage them better. You can do this by categorizing your risks into market risk, insurance risk, strategic risk, and operational risk.

Recognize risk owners

From the risks within your risk library, it is vital to gain an understanding of the apt person to monitor and manage these risks. This refers to finding a risk owner. This individual is accountable for assessing risks as well as recognizing associated controls. They also are responsible for reporting breaches of controls. There can be more than one risk owner for every individual risk.

Recognize the controls to minimize risks

The next step in risk assessment involves working with risk owners to recognize existing controls that are in place to do away with risk. Each control needs to be allotted to a responsible party or owner.

Pay attention to risk potential and impact

The risk to a company is based on its own evaluation of the trade-off between return and risk. Analyzing the financial impact as well as the probability of risk can help management in understanding whether the company is functioning within its expected risk appetite. This can help the company decide whether they should reject or accept a risk or simply minimize it. You can make your evaluations based on financial significance or impact as well as the likelihood of the risk that is going to occur after mitigating effects.

Revisit this framework annually

At this stage, all you need to do is create a risk library and recognize risk owners, recognize mitigation controls, and evaluate every risk for financial likelihood and effect. Risk assessment is a living process and needs to be carried out at least yearly. It also needs to be conducted more frequently if there is a major change in the risk profile of your company. All in all, it is an important exercise to revisit the company risk on a yearly basis. This is because definitions and risks develop and change every year.

Going in for security risk assessment can permit an organization to take advantage of a holistic view of the risks it can encounter. It also makes it easy for management to recognize risks in advance and accordingly capitalize on these opportunities. So make sure you go through an effective risk assessment process on a regular basis.