Risk Management

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What is risk management?

Risk management is the identification, assessment, prioritization and mitigation of the impact that uncertainty can place upon an organization. Risk management often is used to help an organization determine its risk appetite—how much risk the organization is willing to assume in order to achieve its stated objectives—as well as to develop the methods for ensuring that the risk an organization does assume does not excessively threaten the organization’s operations or success.

Risk management addresses both negative risks (preventing or dealing with adverse outcomes) as well as positive risks (better understanding opportunity costs).

The term “risk management” is often used by different groups of professionals to describe rather different, yet related, functions. Risk management might be best thought of as having three different iterations: operational risk management, financial risk management, and enterprise risk management.

What is operational risk management?

Operational risk management is the management of the risks that arise from the day to day functions of an organization. Many of these risks are legal, physical, and/or insurable in their nature. Compliance has a role to play in operational risk management by helping to prevent behaviors that can result in loss, such as worker injury or legal liabilities.

What is financial risk management?

Financial risk management focuses on portfolio risk—how the organizations’ financial decisions do or do not expose it to larger financial loss. Financial risk management and operational risk management are often considered separate, but related, disciplines. Compliance has a role to play in financial risk management by helping to prevent excessive risk-taking on the part of portfolio managers.

What is enterprise risk management?

Enterprise risk management (ERM) is the process by which an organization integrates risk management policies and procedures across all aspects of an organization, with one of the aims being to embed a risk management-oriented culture at all levels, from mundane daily operations to strategic board decisions. Compliance has a role to play in ERM in that there are compliance aspects to any portion of an organization, and harmonizing that creates an enterprisewide solution that easily syncs with ERM in philosophy and execution.

What is ISO 31000?

ISO 31000 is a one of a number of internationally recognized risk management standards. It was first published by International Organization for Standardization in 2009, and is actually a family of standards meant to provide a best practices framework for any operation concerned with risk management.

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