The principles of good risk management

We find the following principles of risk management are a good framework for effectively identifying, assessing, and managing risks within an organisation.

While specific approaches may vary depending on the industry and context, here are some fundamental principles that we think are generally considered essential whatever size, market, and industry you’re in:

Step 1: Risk Assessment:

Organisations should conduct a comprehensive risk assessment to identify potential risks and their potential impacts. This involves analysing both internal and external factors that could affect the organisation's objectives.

Step 2: Risk Identification:

All potential risks, including known and emerging risks, should be identified and documented. This requires involving relevant stakeholders and utilising various techniques such as brainstorming, checklists, and historical data analysis.

Step 3: Risk Evaluation:

Risks should be evaluated based on their likelihood of occurrence and potential impact. This allows for prioritisation and enables resources to be allocated effectively to address the most significant risks.

Step 4: Risk Treatment:

Once risks are identified and evaluated, appropriate risk treatment strategies should be developed and implemented. This can involve avoiding, mitigating, transferring, or accepting the risks. The chosen strategies should align with the organisation's risk appetite and objectives.

Step 5: Communication and Consultation:

Effective communication and consultation with stakeholders are crucial in risk management. This includes sharing relevant risk information, seeking input from experts, and involving all relevant parties in the decision-making process.

Step 6: Monitoring and Review:

Risk management is an ongoing process. Organisations should establish systems to monitor and review risks regularly. This helps to ensure that risk treatments are effective, new risks are identified, and changes in the organisation's context are taken into account.

Step 7: Integration into Decision-Making:

Risk management should be integrated into the organisation's decision-making processes. Risks should be considered when developing strategies, designing projects, and making operational decisions.

Step 8: Continual Improvement: 

Organisations should strive for continual improvement in their risk management practices. This involves learning from past experiences, adapting to changing circumstances, and updating risk management frameworks and processes accordingly.

Step 9: Compliance and Governance:

Risk management should be aligned with legal and regulatory requirements. Organisations should establish appropriate governance structures, policies, and procedures to ensure compliance and accountability.

Step 10: Risk Culture:

Developing a risk-aware culture within the organisation is essential. This involves promoting risk awareness, providing training and education on risk management, and encouraging a proactive and transparent approach to addressing risks.

By adhering to these principles, organisations can enhance their ability to identify, assess, and manage risks effectively, leading to better decision-making, protection of assets, and improved overall performance.