Why do you need a risk management framework?

Risk management is all about understanding your business key success factors and risks around these factors. Also, employee's engagement is very important aspect to effectively establishing and implementing risk management frame of work. Finally it all comes to very critical to establishing leasership culture to get the best out of such framework.

A risk management framework is vital because it offers a structured approach to handle uncertainties that can impact an organization. It provides clarity on the risk appetite, ensuring all decisions align with an organization's tolerance levels. By defining roles and responsibilities, it ensures that there's no ambiguity in who should act and when. With a framework in place, organizations can consistently apply risk assessment methods, enabling uniformity in responses and decision-making. Furthermore, it streamlines reporting and communication, making certain that stakeholders remain informed and can act timely. In essence, a risk management framework anchors organizational processes in proactive, rather than reactive, strategies.

A risk management framework includes the creation and application of tailored manuals and policies based on specific capital requirements, risk tolerance, sectors and economies where the organization operates in and its potential financial and operational risks. As a result, the organization has defined roles and responsibilities during ambiguous situations, with established proactive processes.

You can think of the risk management framework as a toolset that enables you to determine positive and negative risks, develop risk mitigation and leveraging procedures, manage and monitor your organizational learning, integrate your risks with your strategies and operations, and finally communicate your organizational risks with stakeholders.

"Risk" management is "Objectives" management. An organisation needs to identify, assess, treat and monitor the risks which may affect the achievement of the organisation's Objectives. Most smart organisations today treat compliance risk in conjunction with operational risks.

See Credit Suisse, FTX and many other companies who failed because of ineffective risk management framework. These cases are a proof that risk management is vital for the survival of any business - no matter how big it is!

For organizations new to the risk management game, a framework will give employees a clear guide as they learn about proper risk management activities and how to implement them. Those responsible for risk management governance can be better assured that all potential risk management gaps have been covered when rolling out a risk management program within their organization.

A management framework serves as a crucial tool in organizations, offering a structured approach to decision-making and problem-solving processes. It provides a set of guidelines and practices that enable managers to effectively coordinate resources, allocate tasks, and achieve organizational objectives. The benefits of implementing a management framework are manifold and can significantly contribute to the success of businesses. By providing standardized procedures and protocols, it ensures that processes are executed consistently across different departments. This results in reduced redundancy and increased productivity, as employees are able to work cohesively within a common structure.

By establishing a structured approach to risk management, a framework cultivates a culture of vigilance and accountability throughout an organisation, not only guiding decision-making but also fostering a behavioral norm wherein employees at all levels are aware of the potential impact of risks and opportunities.

Firstly, you cannot manage what you cannot measure. An effective risk management Framework ought to extend beyond just a set of rules, and procedures. The framework must be actionable to produce results. Amongst the benefits of having a strong risk management Framework is the protection of assets, be it financial and non financial assets, reputation and image management, the most popular supply chain risk management to constantly monitor the complexities and rapid changes in the market place.

I have to somewhat disagree about the COSO framework being helpful. A RMF should be as simple as possible, and as understandable as possible in order to be useful. Although I teach and consult on COSO, the main beneficiaries of COSO are consultants trying to help clients through the "ribbon". The original cube of course set the ERM profession back a decade IMHO, although it did get people discussing ERM (but then again, so did SOX). Thank goodness for ISO 31000 and other frameworks.

Developing a risk management framework is a huge huge task and it grows especially if you are a super huge organization. Understanding business needs / organization goals is crucial in developing the RMF. Many of times, organizations would pay consulting firms to build this from thin air, and end up with something that is not bespoke or even relevant to the busienss goals. Leading to an ineffective RMF, challenging to follow, but too big a bill to say it's a wrong investment.

Two useful standards for creating or improving an existing RMF are: - 'Enterprise Risk Management – Integrating Strategy with Performance' from the Committee of Sponsoring Organizations of the Treadway Commission (‘COSO’) (2017). - 'ISO 31000:2018 Risk Management – Guidelines' from the International Organization for Standardization (‘ISO’).

In my experience, an experienced risk expert must choose the most suitable framework based on the organisation, the industry, the objectives, the requirements and the framework conditions. Whether COSO, ISO 31000, GRC systems, ?NORM D 4901 and much more depends on these aspects. As setting up a framework, but above all maintaining it, is very demanding, a wrong decision on the framework can ruin everything or make it impossible. It is therefore important to thoroughly explore and analyse which framework is the right one for the XXX organisation

A risk framework needs to be agile, manageable and measurable. While in the initial phase of development it is fine to brainstorm about every risk imaginable make sure it is cut down to the essence plus ten percent. This ensures the business side of an organisation stays involved and more importantly, alert. Review and discuss at least once a year whether the risk attributes are still relevant or need a different weighting. Which other new risks are on the horizon. War-game your risk framework to see whether the planned responses are still fit for purpose.

One of the biggest challenge is to ‘complete’ the framework with a feedback loop. A Risk Management Framework should have a built in continuous cycle that allows it to adapt to the changing nature of business and Risk Appetite.

The effectiveness of any Risk Management Framework (RMF) is underpinned by developing a strong risk culture demonstrated in organisational behaviour. This needs to be actively supported by the C-Suite and Board. Too many periods of poor performance and company failures are due to a RMF being unsupported and a weak risk culture demonstrated in risky organisational behaviour e.g. RBS and FTX.

Agreed - the challenges include the buy in of Senior Management, the tone at the top is so important. However, effective communication is also key to building awareness and cultivating the right organizational behavior.

Development and implementation of Risk framework should be driven by the governing body of the organisation. Without the senior management involvement, the framework shall remain on paper only. The governing body and the senior management should be aligned to keep a balance between the business and associated risk. Everyone’s voice should be heard and views should be respected to ensure risk are adequately addressed.

Sometimes, risk management is not aligned with an organization's strategic goals. To solve this, risk management needs to be integrated with strategic planning, budgeting, and performance reviews.

A risk management framework that adds value promotes rational risk-taking on innovations and forward-thinking opportunities while helping avoid unintended or unwanted risks from hurting the company. Excessively long-term or detailed future planning is ultimately counterproductive if it hamstrings the company today. One major risk for any company is regulatory compliance risk. The risk management function needs to take care of the box-checking exercises and reporting exercises without taking up too much time or money. Regulatory capture strategies or carefully managing relationships with top government officials can be employed to allow the company to repel excessive regulatory meddling by bureaucrats.

One vital point, raised above, is endorsement from the very top, without this, any chance of a collective buy-in is unlikely. Also mentioned above is organisational maturity, this is vital for development, and progression.

Rather than treating risk management as a standalone process, organizations should integrate risk management elements across existing policies and procedures. This could include mandating risk analysis within various existing policies and procedures, ensuring that risk management becomes an intrinsic part of daily operations and decision-making. This encourages business units to take ownership of their risks, and it promotes a better risk culture across the organization.

Once the requirements described above have been met, the next step is to visualise and implement them. Involving people in the creation of processes and procedures is an excellent way to do this. Kick-offs in a cosy setting with a café and cake are also perfect, as banal as it may sound. The superstructure is a common strategy and a common big picture. Many experts say that without a big picture and without giving the employees of the organisation the feeling that they are part of it and can help shape it, without these 2 super-aspects, development and effective implementation cannot succeed

The Risk Conversations are MORE IMPORTANT than the risk reports. Most risk reports are just an outdated presentation of historic information in 3 colors. Last month's risk report is quite useless, the world has moved on.

While the main expectation from an Enterprise Risk Management (ERM) function is to act as "a map, understanding of weather patterns, or awareness of potential obstacles", it is important to know how it can do so about systematic risks. About these kinds of risks, Enterprise Risk Management (ERM) can act as an efficient reactionary function which tells its organization "which tides to ride and which ones to dodge".

My insight to add here, from my early stage technology startups experience, is to always anchor the risk management objective with the incessant question to senior mgmt and BoD: "What will you do if the _______ doesn't work, what is your immediate Plan B?" And fill in the blank with everything from "sales and marketing plan" to "product market fit (PMF)". Time is money, and the senior mgmt team, or the Founder/CEO in particular, often gets stuck trying to manage/improve the existing plan of action.

I'd share my experience in cyber risk management. The primary difference between a matured and organizations working towards maturity is monitoring the risks effectively. In today's era, the need to monitor the risks is way important that anything and companies are far from this. For instance, recently organizations using MOVEit app were compromised and most of them lost their data. Despite this the risks weren't managed properly by most of 'em. In the second wave of hack, there were many more who got hacked. Ergo, it's really important to monitor as to identify and mitigate a risk

A robust risk management framework isn't merely a defensive tactic but an active strategy to navigate uncertainties. For instance, in developing a new technology, acknowledging potential cyber threats at each development phase is vital for product security and user protection. Through methodical risk assessment and mitigation, organizations strengthen their adaptability, setting the stage for sustained success in a fluctuating landscape. Consistent fine-tuning and adaptability are pivotal to maintain a responsive and impactful framework amid evolving risks.