According to a recent report conducted by professional services firm Deloitte, heightened regulatory scrutiny and greater concerns over risk governance have led a large proportion of the world’s financial institutions to increase their risk management spending. The survey on risk management practices which is titled ‘Setting a Higher Bar,’ found that two-thirds of the surveyed financial institutions reported an increase in spending on risk management and compliance in 2012, reflecting a 55 percent increase since 2010.
The report went on to indicate that operational risk has been a continuing challenge for many institutions. It attributes the lack of ability to measure operational risk as the key factor that has caused resounding apprehension among organizations with regards operational risk management.
With Risk Management funding on the rise but cautiousness lingering on, it is important to understand why you should invest in operational risk management so that you can look out for your business with a clear conscious and ensure your money is being well spent.
Being pro-active and examining potential hazards, whether they are short or long-term, and how they could negatively impact your business, is crucial in Risk Management but it’s much more than a ‘one-off’ trip. Many Insurers will argue that Risk Management is more of a journey than a destination and in order to ensure your Business process remains ‘loss-free’, you have to persist and ensure the Risk Management process is continuous and consistent. This comes from adequate funding and an investment of both time and energy.
Protection against emerging risks
It has recently emerged that reputation is considered the most difficult risk to manage for businesses. While this may be true, it does not have to be the case. Investing time and effort into Risk Management can help you protect against emerging risks such as reputational risk and Social Media Risk, both of which can be difficult to protect against in our ever-changing world. Adequate training coupled with extensive research can help you mitigate the chances of experiencing a social media blunder or indeed seeing your reputation suffer. This is no cost-free procedure however, and will require continued investment so that you can stay one step ahead of the risks.
The Risk Assessment review process is not always regarded a priority for businesses, but without it, you can never fully understand how operational your system is and what kind of results it is delivering. While many insurers will recommend an annual review process as an adequate measure, if you are serious about operational risk management and are determined to see positive results, an ongoing review process should be atop your list of priorities.
By introducing a consistent review process, you will be able to evaluate where you are going wrong with your Risk Management Strategy and what exactly you are doing right. It also helps in managing and mitigating the emerging risks we discussed above, making regular modifications and updates easier to carry out. This too will require ongoing funding to effectively implement but considering the potential damage a loss occurrence could do to your business, it can only be regarded as a modest investment.
Operational Risk Management can be a tricky business, and for many businesses, it is just that. But, it doesn’t need to be. Discarding an apprehensive approach begins with understanding your requirements, establishing the hazards and identifying who may be harmed and how. Ensuring the long-term safety of your Business and your Business process requires a consistent level of funding, effort and attention.
If you are in need of Strategic Rick Management advice, get a free consultation from one of our experts.