Risk Management

Risk management is simply a practice of systematically selecting cost-effective approaches for minimizing the effect of threat realization to the organization. All risks can never be fully avoided or mitigated simply because of financial and practical limitations. Therefore, all organizations have to accept some level of residual risks.Whereas risk management tends to be pre-emptive, business continuity planning (BCP) was invented to deal with the consequences of realized residual risks. The necessity to have BCP in place arises because even very unlikely events will occur if given enough time. Risk management and BCP are often mistakenly seen as rivals or overlapping practices. In fact, these processes are so tightly tied together that such separation seems artificial. For example, the risk management process creates important inputs for the BCP (assets, impact assessments, cost estimates etc.). Risk management also proposes applicable controls for the observed risks. Therefore, risk management covers several areas that are vital for the BCP process. However, the BCP process goes beyond risk management's pre-emptive approach and assumes that the disaster will happen at some point.

The most impact and recognition of value is often perceived more at the executive and director levels, than other layers of management. 

Five key benefits and values from Risk Management include
- Increased consistency and communication of risks within the organization.
- Enhanced reporting and analysis of corporate risks (risk data).
- Improved focus, attention and perspective to risk data.
- More efficient and effective activities related to regulatory, compliance and audit matters.
- More cost-effective management and monitoring of risks.

- Increased Consistency and Communication Risk Management provides a standard terminology and conceptual framework for all members and departments in the organization. This consistency and commonality provides improved opportunities for communication and coordination among various layers and departments. In addition, communication regarding risk is often lacking within organizations due to concerns of confidentiality, propriety and job security. As a result, data and information relative to strategic risks, and risks to achievement of corporate objectives and plans, are not shared across department lines. 

- Enhanced Reporting Implementing Risk Management supports better structure, reporting and analysis of risks. Risk “dashboards,” consolidating risks across the entire enterprise, increase the focus of directors and executives, enabling better decisions relative to risk thresholds, risk appetite and risk tolerance. The reporting, therefore, has better categorization and classification of risk data, allowing various types of reporting (department vs. Entity-wide, financial vs. Compliance, high vs. Low risk, quantitative vs. Qualitative factors, etc.). Ultimately, the greatest overall value from Risk Management and related reporting is the timeliness, conciseness, and flexibility, which facilitate improved decision-making capabilities within the executive and director levels, and in other layers of management. Risk Management helps “unlock” synergies and potential for increased analysis and assessment of risks by aggregating and sharing all corporate risk data and factors, and evaluating them on a consolidated basis.

- Improved Focus and Perspective of Risk Data Utilizing Risk Management methodologies and techniques provides a means to further identify and assess key performance indicators regarding risks. This allows a method to “measure” and better quantify risk factors and tolerances. The use of key metrics and measurements of risk further improve the value of reporting and analysis.Risk Management models also permit more effective and complete viewpoints of risk. Traditional risk practices focus on risk from a perspective of mitigation, acceptance or avoidance. However, effective Risk Management processes will give management a framework in which to evaluate risk as an opportunity to increase competitive positions and exploit certain market, operational and related conditions.

- More Efficient Coordination of Regulatory and Compliance Matters Bond rating agencies, financial statement auditors, regulatory examiners and other audit activities (including internal audit) have begun to inquire, test, and often leverage and utilize monitoring and reporting data from Risk Management programs. Risk Management data involves identifying and monitoring controls and mitigations relevant to various risks across the organization, this information can provide an effective means for leveraging and reducing the effort and cost of such audits and reviews.

- Cost Effective Management of Risk Through all of the benefits noted above, Risk Management enables better cost management and cost effectiveness related to audit activities; better management of market, competitive and economic conditions; and increased leverage and consolidation of disparate risk management functions.Organizations can use Risk Management data and reporting to more effectively coordinate with investment custodians, better manage capital/investment decisions and make more timely decisions regarding hedging instruments. By potentially reducing the overall cost of risk management processes, reducing audit costs or minimizing resources needed for regulatory responses, and streamlining monitoring and reporting functions, Risk Management has the capability to reduce the cost of the existing processes and functions for these respective components within the organization.