Risk Management is important for all businesses.
Whether you are an organization of 2 or 200,000 people, a risk management framework is essential for your business’ success. All businesses have risks. When you know what they are and have a plan in place for managing these risks you will be more prepared to withstand the ups and downs these risks may pose to your ability to achieve your business objectives.
What is a risk management framework?
A risk management framework is your playbook for how you intend to manage the risks your business faces. It helps you think through and communicate your risk management strategy for the risks that you are exposed to.
It communicates, among other things, the following:
- how risk management plays a role in your business
- how willing you are to be exposed to risks,
- who is responsible for managing risks, and
- how your risks should be managed, monitored and reported on
A sound risk management plan will help you rest easier knowing that you have a playbook in place! It can also help demonstrate to your stakeholders and investors that your business is a sensible one. To them, it demonstrates that you have thought about what could go wrong and have a plan in pace to mitigate potential pitfalls.
If you have a good risk management framework, you probably had a plan in place for running and maintaining your business during the pandemic.
When do I put a framework in place for my business?
The most ideal time to establish a risk management framework is when you are forming the idea for your business. However, it is never too late to do so.
You probably already have a framework that is perhaps not distilled into a comprehensive document. It is important that your principles for managing your risks are written down, understandable and fit together as a whole. This will help you identify the gaps and/or inconsistencies in your risk management strategy and practices.
How do I design a risk management framework for my business?
Tailor your framework optimally for the size and complexity of your business. It does not have to be complicated. Actually, the simpler it is the easier it is to communicate and implement. However, there are essential considerations that should be captured in your framework and, depending on your industry, may be expected by your regulator. So before you begin,
- think about how proactive you would like your business to be when it comes to managing its risk,
- have the right people at hand to advise and challenge your expectations, and
- understand the guidelines established by your industry regulator if relevant.