Approaches to Risk Management

Approaches to Risk Management

Summary: Chapter 6, 7, 8, and 9

In Chapter 6, the book discusses risk management standards and frameworks as well as risk management processes. Notably, countries have different standards, such as British Standard BS 31100, Institute of Risk Management (IRM), and CoCo (Criteria of Control). Remarkably, these standards have a similar approach to risk management. Some standards, such as IRM’s standards of 2002, are well crafted and widely used across the world. Like other processes in an organization, risk management has a comprehensive process that encompasses risk analysis, risk evaluation, risk reporting, decision, risk treatment, and monitoring. Some of these processes have subsections. For instance, risk analysis entails risk identification, risk description, and risk estimation. Risk reporting, on the other hand, encompasses both risks and opportunities that can be experienced during the risk management process.

In Chapter 7, the book discusses risk management strategy, risk management protocol, and risk management architecture as the main pillars of risk management. Notably, risk management strategy entails the philosophy of risk management, benchmark tests to determine the significance, attitude towards risk, techniques used to assess risks, and so forth. Mainly, risk management architecture covers aspects, such as management teams/ committee structures, their roles and responsibility, and external controls on reporting. Risk management protocols, on the other hand, entails procedures used to assess risks, a system of classifying risks, procedures, and protocols of auditing risk, methods of documenting and keeping records. Notably, each of these pillars has numerous roles that must be coordinated to achieve the desired objective or success in the management of risks.

In Chapter 8, the book reviews the documentation of risk management activities and the importance of the exercise. Mainly, risk management records cover activities, such as event reports and recommendations, risk management administration, risk performance, improvement plans, risk response plan, certification reports, and improvement plans. These records play different roles. For instance, risk guidelines enable managers to have insights into risk management frameworks embraced by an organization. In general, documents allow the management to share relevant information, avoid duplication of information, use little time to acquire knowledge, facilitate risk management long-term planning, and, where possible, use records as a defense in legal cases. To achieve their objectives, relevant documents have to be designed and customized according to the nature and needs of an organization.

In Chapter 9, the book talks about the allocation of responsibilities in risk management. Notably, workers, contractors, and suppliers need to know their risk management responsibility. There should be clear statements of duties of workers, suppliers, and contractors to set appropriate risk standards, implement risk standards accordingly, and monitor risk performance with suitable tools. Mainly, the risk management team should cultivate a close link with an internal audit to promote compliance with designated standards and vase decisions of sufficient available information. In this regard, a risk management team will have professionals such as internal auditor, compliance manager, business community manager, corporate treasurer, and insurance risk manager. The statutory responsibilities of these professionals include promoting the success of the company, as well as acting within their responsibilities and as per the company’s constitution.

1. What is meant by the changing face of risk management? What should businesses do to manage emerging risks? For example, the world is hit by a new pandemic now. How should businesses manage this type of risk in the future?

Changing the face of risk management entails altering the approach or strategies of coping with effects (risks) of change. To manage emerging risks, businesses should introduce strategies that appropriately mitigate the impact of the change or phenomenon to their operations. Currently, businesses can handle this type of risk (Covid-19) by asking employees who can work from home to do so until the pandemic is eliminated.