Risk management is an increasingly important part of business operations. Not only to manage risks but also to see and capitalize on opportunities. There are many, more or less complex theoretical models and principles that we try to bring back to the core to keep it simple and practical.
In this blog, we explain how to get started with risk management.
The purpose of risk management
The goal of risk management is to identify, assess and respond to risks. The process an organization ideally uses for risk management is a clearly defined method for understanding what risks and opportunities are present, how they might affect the organization and how to respond to them.
The 4 essential steps of the process around risk management are:
1. Identify the risk.
2. Assess the risk.
3. Treat the risk(blog).
4. Monitor and report on risk.
Below we further discuss Step 1, identifying risks and Step 2, assessing risks.
Step 1: Risk identification
The first step in the risk management process is to identify all events that could negatively (risk) or positively (opportunity) affect the organization's objectives. These events can be recorded in a risk register.
You can of course write out these risks yourself but that is quite a lot of work. Perium offers you the solution. Within Perium the most common and relevant Security and Privacy risks are already included and available for your organization. You only need to assess them (see step 2).
Perium allows you to easily track all possible risks, and should you want to add specific risks, you can do so in just a few clicks.
It is important that risks have owners. These are the employees who are responsible for the risk and have the knowledge and mandate to manage the risk. In the Perium platform, you add owners and targeted actions to resolve the risks.
Step 2: Assess the risk
There are many ways to conduct a risk assessment, also known as a risk assessment. From a pragmatic workshop with a few employees to detailed methodologies. It is important that the approach fits well with the needs of the organization and that the right people are involved in this step. We do recommend documenting the approach so that this process is repeatable and becomes (increasingly) reliable.
You can do the assessment of risks and especially the recording of the result of that assessment in Perium. You efficiently record the results of the process, independent of the process you followed as an organization.
How do I conduct a risk assessment?
In fact, there are two main elements that need to be established:
1. The risk score (probability x impact).
2. The risk strategy
These elements affect your risk management. This is because when you determine the risk score, you get an overview of the likelihood of risks occurring and the impact these risks can have on business operations. You then use the risk strategy to manage the risks to an acceptable level.
The risk score
With a risk assessment, you determine how likely the risk is to materialize and what impact that would have on the organization. The results are recorded in the risk table with a score on gross risk (also called inherent risk before you start taking control measures) and net risk (also called residual risk after you have taken control measures). The probability and impact are usually scored on a scale from 1 (low probability, low impact) to 5 (high probability, high impact). The probability times the impact is the risk score.
Thus, a gross risk is a risk without control measures and a net risk is a risk including (active) control measures. Ideally, the probability and consequences of a gross risk are first estimated and then it is determined whether there are already control measures that reduce the probability or consequences of the risk. If the existing control measure is functional cq effective, the probability or consequence of the net risk is lower. For your organization, it is obviously important to know how this risk score compares to the risk tolerance limit.
The risk tolerance threshold refers to the risk the organization can and is willing to bear. Prior approval is given on the threshold levels of risk exposure. If exceeded, for example, it should be escalated to management. The level of risk is determined by the net risk score (= probability x impact) and is compared to the risk tolerance limit. The result of this step provides insight into which risks are acceptable or unacceptable.
These elements (risk score, probability and impact, gross and net risk, risk tolerance limit) are also available in Perium. Perium also makes available the link between the risks and possible control measures. In this way you manage the risks conveniently in one place.
The next step is to determine how to control the risks, which you as an organization do not consider acceptable, and bring them back to an acceptable level. There are several ways to control or mitigate a risk:
- Avoidance. For example, when policy choices or a business process within your organization involves too much risk, you may choose to change the policy or end the process.
- Reduce. Addressing the cause of the threat is also part of reducing the risk. Management measures are used to try to reduce the probability and impact. These measures are, as it is called, repressive, damage control.
- Outsource. If the organization is risk-averse, it may choose to outsource an entire process, for example. The party taking over the process then also takes on the risks. This is also called transferring or outsourcing.
- Accept. Is the risk too small, or does the necessary investment outweigh the positive outcomes after taking control measures? The possible consequence of the occurrence of the risk is then accepted.
So you determine the risk strategy based on the risk scores and the type of risk you run and ultimately are willing to run. In Perium, the risk management platform, you can easily make this trade-off because you have all the risks assigned to the responsible persons, have insight into the risk scores and also know to what extent you are willing to take risks.
Based on the above steps, you as an organization can determine how risks should be handled in a risk treatment plan. In the next blog, we will discuss this in more detail and also cover risk monitoring and reporting.
Risk management with Perium
For any organization, risk management is an important step. With Perium, you implement this effectively and efficiently. Perium is the platform for risk management. Within half an hour you are already up and running. In addition, you can easily add specific management wishes to the platform.