What Are the Six Steps of Risk Management?by Laura Jones Assignment Writer
To successfully manage risk, a firm should set strategic, operational, reporting, and compliance objectives, identify internal and external events that may influence operations, analyze workflows and processes, identify risks and causes, and assess the impact of identified risks on operations.
Six steps to risk management
1- Risk management goals
To properly assess risk, a corporation must first establish its objectives.
Aims and elements affect success in accomplishing those goals. Setting the context is a prerequisite to identifying risks.
A risk management plan is also essential, preventing the build-up of operational hazards. "Investing in information risk management pays off when developed risk intelligence."
Managing risk involves devising and implementing a strategy to deal with probable losses. The primary goal of risk management is to prevent tortious, contractual, or statutory responsibility.
Management should develop four basic kinds of
➤ Reporting - the entity's reporting dependability
➤ Compliance – with applicable laws and regulations.
➤ The risk management framework is based on the setting in which the organization's risk appetite is determined.
➤ The context assesses
➤ Needs, issues, and concerns of stakeholders
By studying workflows and processes, a firm may discover risks and causes, the level of risk, and the impact of identified risks on the organization's operations. It is critical to identify internal and external events that may impact the organization's goals, identifying risks and opportunities.
Opportunities are fed back into management or goal-making methods. Should address the following questions during risk identification.
• How high is the risk?
• What choices are available?
• How big and urgent are the consequences of risk?
• Can the danger be reduced or eliminated?
• How do people and groups see the risk?
• What features of the issue stand out?
3. Assessment of risk
To prioritize and assess risks, a corporation should first rank them by inherent and residual risk, then likelihood and consequences.
Then, based on the organization's needs, the remaining risks must be assessed, prioritized, and addressed.
It is hardly unexpected that man has always sought to eliminate uncertainty and has created techniques and talents. The method in which consequences and likelihood are stated and integrated to calculate risk level should reflect the risk type, and these hazards should all meet the risk requirements. Risk identification, risk estimation, and risk appraisal are discussed.
Risk assessment is the process of determining the quantitative or qualitative value of risk associated with an event as it occurs. Risk is the chance of an event plus its repercussions.
4. Controlling risk
A corporation should identify control options, prioritize risks, and make control decisions. A sequence of activities is developed to align the troubles with the entity's risk tolerance level and appetite for risk. Once the risks are identified, the organization must prioritize them. It is unlikely that a corporation can minimize all of the dangers listed; consequently, it is critical to identify and prioritize the most critical risks.
ISO 31000:2009 provides a set of general risk management alternatives. The list is sorted by preference, and one of the choices must address both the downside and upside risks.
➤ Removing the risk source
➤ Changing the likelihood
➤ Changing the consequences
➤ Sharing the risk with another party or parties (including contracts and risk finance)
➤ Retaining the risk by informed decision
5. Implement risk controls
A corporation should first design a clear structure with processes and procedures to establish cohesive authority and responsibility.
To mitigate the risks, must undertake control activities such as operational evaluation and reporting, permission, verification, approval, and work distribution. Determine control priorities and make control decisions. "Risks, controls, and risk treatment duties are comprehensively specified and accepted."
6. Review and monitor
The company should also have audit procedures to see if those risk-related control procedures are working effectively and should periodically audit the control procedures to determine if the risk monitoring process is working effectively and as expected.
In addition to financial reporting, COSO believes that monitoring helps the organization's whole system of governance, including operational decision-making.
The monitoring should involve assessing the quality of control over time, either individually or jointly.
➤ Identify critical hazards and implement control mechanisms to monitor or correct them.
➤ Establish testing procedures to assess the effectiveness of risk-related control measures.
➤ Test the control processes to see if the risk-monitoring process works as planned.
➤ Adjust or improve risk-monitoring processes as needed.
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Created on Apr 13th 2022 04:49. Viewed 302 times.