In many ways, Strategic Risk Management is understanding that failure to adequately account for a number of related risks can negatively impact on you and your business. While organizations are increasing Risk Management funding and ultimately developing their understanding of a ‘loss-free’ process as opposed to a ‘risk-free’ one, hesitancies with regards Risk Management remain, limiting the potential progress of companies.
Risk would not be so-called if there was 0% chance of a loss event occurring. However, in identifying and analyzing the difficulties created by implementing Strategic Risk Management, we can overcome obstacles and focus on success.
Below, we have outlined the 4 biggest challenges faced by organizations in developing and implementing Strategic Risk Management.
Defining Risk Appetite
Defining risk appetite is arguably the most important step to achieving success with your Risk Management Strategy. By tracking risk assessments, setting quantitative and qualitative criteria, and taking into consideration a risk’s unique impact on financial metrics, external relationships, and most importantly, strategic goals, it is easy to weigh up what you are setting out to achieve with your Strategy. In addition, identifying your requirements and the potentiality of various risks within your business will help you to devise your long term and short term Risk Management goals.
The application process
The application of Strategic Risk Management varies considerably with Industrial circumstances and requirements. Risks in the workplace will depend on the nature of the workplace, with Credit Risks, Property Damage Risks and Health and Safety Risks are all components that will vary depending on the work you are involved in. While these risks will vary in prevalence depending on Industry, the application process remains unchanged.
Through defining your Risk Appetite and identifying the risks that threaten your Business, you can work on applying your Strategy to ensure potential risks don’t come back to negatively impact on your overall process. This begins with training, an established review program and a solid communications structure within the organization.
While the success of Strategic Risk Management starts with establishing what you’re after and subsequently developing a way of tackling those risks, the potential success/failure hinges on the Communications structure within your organization. Often in crisis situations we see a simple breakdown in communication as the determining factor. This is one of the biggest Risk Management challenges facing Businesses and other organizations as it is often taken for granted and pushed to the background behind some more ‘obvious’ demands.
Developing a solid communications structure starts with engaging stakeholders and finishes with ensuring each and every employee is in the know when it comes to company policy. If employees are unaware of how their responsibilities relate to the bigger picture, strategic goals may remain abstract as opposed to actionable. It is often advisable for organizations to delegate responsibilities among employees so that everyone takes on the responsibility of actively managing risk.
Risk Management is very much a grey area with the numerous considerations that need to be made in its development and implementation, but its success or failure is easily identifiable. Obvious signs like a crisis or risk event will clearly demonstrate the failure of Strategic Risk Management, however quantifying successes can be a much more difficult process.
Establishing a coherent and conclusive evaluation process can help you to learn what is going right and what could be improved. This is part of the overall review process which allows you to remain one step ahead with your Risk Management process.
While implementing Strategic Risk Management is not a simple step by any means, there is no reason it can’t be made easier through a calculated step by step approach, taking obstacles into account and consequently moving to evade them.