Why Businesses Need to Update Their Risk Management System Regularly

Summary:

Risks can be obvious in businesses and many businesses operate a risk management system to control them. This article explains why and how they need to update their risk management to deal with the evolving challenges.

Businesses are risky ventures, therefore, having a standardized risk management system will help to control current and future risks. However, as a business expands and its processes evolve and the environment of operations alter, several new risks may emerge. Sticking with the old management system is not the right thing for a business if it aims to evade all the risks to its operations or finances. As said by most risk management consultants, risk management is a process that is to be followed, monitored, and revised continuously. If at any instance the organisation’s management feels that the system is not effective in stopping the risks, they need to update the system. Instead of struggling with the outdated risk management framework, they should identify the drawbacks or inaccuracies in the system and modify it.

While continually monitoring the risk management system is needed to determine its effectiveness, you also should have a definite strategy. This article will further explain how to determine the competence of your risk management system and update it if required.

Conduct a Gap Analysis

A great way to know whether the ongoing risk management framework of a business is competent in handling all the risks is conducting a ‘gap analysis’. With a thorough evaluation of the risks and their mitigation strategies, one can know whether the risk management approach of the business is efficient. Gap analysis is usually completed by comparing the organisation’s current situations (focusing on the risks or uncertainty issues) against the risk mitigation plans. The findings of the analysis often include the business’s biased focus on risks in some areas, allowing some risks to occur without mitigation measures, and lack of commitment by members of the organisation in risk management.

Gap analysis is important as it points out the inefficiencies in the present management system and makes it clear for the management authorities to identify all risks, analyse their magnitude and frequency, make mitigation plans, and implement them cohesively.

Analysis of the Data Used for Risk Management

When risks are determined based on inaccurate data, mitigation plans are bound to fail. Information from various processes and the internal and external environments of a business are used to assume the risks and make management decisions. If the information is misleading and inaccurate, the decisions are not going to be effective in preventing the risks. The business needs to use appropriate data, analyse the historical data of internal and external faced by the business and perform thorough industry research. Rigorous analysis of the data relating to every aspect of the business is necessary to determine the risks and figure out imperative strategies to deal with them.

Assess the Organisational Objectives with Risk Management

Another reason business needs to get its risk management system updated is the non-alignment of its objectives with the system. There are several functional objectives that a business wants to achieve, such as prevention of financial volatility, lowering occupational safety accidents, and providing quality products to customers. Many new objectives also may evolve with time. So, the concern is to ensure the risk management framework is actively operating to realise all the determined organisational objectives. If it is not, it is time to improvise the system and align it with those objectives.

Evaluate the Leadership and Management Interference

Businesses need to understand that risk management is a widespread approach that requires implementation with the involvement of the leadership. The employees should be aware and made responsible for undertaking risk management practices in their day-to-day tasks. There is a need for a top-to-down mechanism i.e. management leaders to middle managers to lower-level executives to ensure proper risk management. Management should interfere at each level of the organisation and encourage members to identify risks, report them immediately, and take counter actions to resolve them or prevent them. If there is no intervention by the management team, then the risk management scheme is failing to work!

Conducting a gap analysis, evaluating the role of the leaders/management in risk mitigation, and analysing the data used in risk assessment are basic ideas that should help you figure out whether the risk management system needs to be updated. The approach to risks assessment and risk control is tremendously complex and many inconsistencies prevail even if there is leadership, participation of members, or use of enough data. When the risks evolve, the same old management concepts do not work, so periodically reviewing the system and identifying the inefficiencies will help to ensure the necessary improvements in risk management.

Author Bio:

The author is an expert risk management consultant who helps business owners with different ways to implement a sound risk management system and hinder any risks to their business. He is also a blog writer and writes mainly about the implication of various management systems for business and other ISO certifications.

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Created on Nov 27th 2020 07:34. Viewed 305 times.

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