What Is Risk Management?
Every company is vulnerable to a certain amount of risk. These risks can stem from sources including financial uncertainty, legal liabilities, management errors, accidents, and natural disasters. IT security threats and data related risks can also be problematic, especially for digitized companies. Risk management works to identify risks and control threats at every level, helping institutions protect their capital and earnings.
Risk management is important for every company and is, in fact, such a crucial part of doing business that there are several industries and government bodies that have expanded regulatory compliance rules, carefully examining the plans, policies, and procedures adopted by most businesses.
For instance, in banking, regulatory guidance can come from a number of different agencies, depending on the type and location of the financial institution. These banking regulators restrict certain activities, require others, and are designed to establish transparency between the bank and its customers.
Risk management is scrutinized by these industries and written up in reports that analyze risk management. To be sure they receive favorable reports, companies enforce their own methods including risk analysis, internal audits and other means of risk assessment.
The standards by which a company’s risk management is assessed has been developed by several organizations including the National Institute of Standards and Technology (ISO). These standards are updated regularly and are designed to help companies minimize risk when implemented into their organizational strategy and the way they run their business.
There are certain target areas or principles that should be incorporated into the overall risk management process. These include:
ability to create value for the organization
ability to be implemented into the organizational process
ability to be implemented into the decision-making process
ability to address any uncertainty
systematic and structured
based on the best existing information
tailored to the project
allow for any human error
transparent and all-inclusive
can be easily changed and improved if necessary
Following ISO standards is not mandatory, but it can help protect companies and prepare them in cases of internal or external risks audits. However, following regulatory guidance from the appropriate agencies in various areas of banking is required.
Because risk management is such an integral part of doing business, there may be times companies will need to bring in a third party to make sure they are compliant. In these cases, vendor management will want to make sure whoever is being brought in is familiar with all aspects of risk management as well as the needs of the company.
Complying with ISO risk management standards is not mandatory, but it can be an important step to take in keeping your company protected. Complying with regulatory guidance is not optional. Find out more about the steps you need to take to reduce risk and keep your institution in good standing.