Risk management is your company's shield against the likes of pandemics, wars, and even the chaos of remote work and fluctuating energy prices. But how do you actually identify and prepare for these risks?
Consider this article your quick guide to effective risk management: learn how to spot risks and turn them into growth opportunities.
In this blog post, we'll cover:
- What is risk management?
- How can companies do risk management?
- What types of risks do companies face?
- What are the minimum requirements for risk management?
- How can companies identify risks?
- How can companies deal with risks?
- How can companies manage residual risks?
- What are the best practices for risk management?
- How DataGuard can help with risk management
What is risk management?
Risk management is a process that companies follow to identify, analyse, assess and address risks to their operations, assets and reputation. The risk management process aims to prepare companies to face and mitigate the risks that could hinder them from achieving their objectives. Implementing risk management practices can improve the company's overall security and help ensure compliance with relevant regulations.
It is an ongoing process, so companies must regularly review and fine-tune their risk management strategy to ensure they are prepared for any new risks.
How can companies do risk management?
The risk management process consists of several steps that need to be repeated on an ongoing basis. Here is an overview of the steps involved:
Risk identification and risk assessment
The first step of a risk management process is to identify potential risks that may affect a company’s operations, financial performance and reputation. The next step is to assess the likelihood and impact of each risk and prioritise them based on their severity.
Risk treatment
After a company has identified and assessed the risks they face, the next step is to design appropriate strategies for mitigation. The goal here is to minimise the likelihood and impact of each risk. These strategies should be cost-effective and tailored to the company’s individual situation.
Residual risk reviews
The final step is to review the risks a company still faces (i.e. residual risks) after the risk treatment process.
If you want more information, check out our webinar for helpful risk management and assessment insights.
What types of risks do companies face?
There are different types of risks that companies need to consider when implementing a risk management process.
Strategic risks
Strategic risks are those that can impede a company from achieving its goals. They relate to the company’s strategic choices, such as the decision to enter new markets. Effective risk management requires a thorough understanding of the company’s goals and the risks it will face in pursuing them.
Operational risks
Operational risks impact a company's daily operations and relate to its processes, systems, and workforce. Examples include IT system failures, data breaches due to insufficient understanding of the involved processes, and inadequate business processes or fraud.
Effective operational risk management means putting checks and procedures in place that minimise or eliminate operational risks. This includes improving processes, automating systems and offering ongoing training for staff. Companies need to create a culture that prioritises risk awareness and risk management.
Financial risks
Financial risks affect a company’s financial performance. Examples include market, credit and liquidity risks. Effective risk management will closely examine their financial planning, investment management and financial reporting.
Legal and regulatory risks
Legal and regulatory risks involve compliance with laws and regulations. Ignorance of broader regulations is a common reason for companies facing such risks. For example, sending personal data via email to an unintended recipient could violate data protection law.
This type of risk can lead to fines, penalties, and litigation. Effective risk management requires companies to examine compliance, reporting, and legal representation closely.
Reputational risks
Reputational risks can harm a company's image, resulting in negative publicity, customer complaints, and even product recalls. To mitigate these risks, effective risk management practices should prioritize brand management, customer service and public relations.
Third-party risks
Third-party risks can result from the actions of vendors, suppliers, and partners or from the use of their products. Examples include contract breaches, data protection issues, disruptions to business operations, and damage to a company's reputation.
Effective third-party risk management involves identifying and controlling collaboration risks to protect the company from potential consequences. Companies should consider this throughout the entire collaboration process - from partner selection and contract negotiations to implementation, integration, and termination.
Supplier management, contract negotiations, and risk distribution are important areas to focus on.
What are the minimum requirements for risk management?
The minimum requirements for a company will depend on its industry and the regulatory standards that apply to that industry. Each case is unique and requires careful consideration.
Each step in the process is subject to a set of requirements that serve as a basis for effective risk management. Every company should be able to do the following:
- Risk identification, i.e. identify all relevant risks that could affect business.
- Risk analysis, i.e. analyse the identified risks and assessing their impact on the company.
- Risk assessment, i.e. prioritise and evaluate risks to ensure that they are effectively managed.
- Risk treatment, i.e. develop and implement a strategy to address the risks that were identified.
- Risk monitoring, i.e. monitoring and managing the risks on an ongoing basis to ensure that the company’s risk management strategies are effective and can be adjusted as necessary.
- Documentation, i.e. document and archive, all company’s risk management steps so that risk management processes are traceable and can pass external audits.
How can companies identify risks?
Identifying risks successfully requires two essential factors: continuity to ensure that new risks are consistently identified and involving stakeholders.
Companies can use a mix of these methods to identify risks:
Brainstorming sessions
Brainstorming sessions bring together people from different departments or levels within a company to identify potential risks. Brainstorming is an effective way of generating ideas and identifying risks you’ve looked over in the past. But brainstorming is also useful in discovering areas of uncertainty or ambiguity that could pose a risk.
A SWOT analysis
A SWOT analysis helps identify a company’s strengths, weaknesses, opportunities and threats. This way, companies can identify potential risks and vulnerabilities that might impact their operations, assets and reputation.
Reviewing historical data
By reviewing historical data, a company can identify risks it has been exposed to in the past. "Through this process, a company can determine which risks pose the greatest threat and which areas of risk management require improvement.
Stakeholder interviews and surveys
Stakeholder interviews and surveys – i.e. with staff, customers, suppliers, regulators – are another way for a company to identify potential risks. Such interviews and surveys yield valuable insights into risks and their impact.
Industry benchmarking
Industry benchmarking is a good way for a company to compare its risk management metrics against others in the industry. The aim is to identify ways to improve and best practices to adopt.
Once a company has identified potential risks, risk assessment is the next step. Companies determine the likelihood of these risks occurring and their potential impact on the business. A risk matrix is a good tool for classifying risks.
How can companies deal with risks?
After identifying and assessing risks, the next step is to develop strategies to minimize their potential impact. Four common strategies for risk mitigation include:
Risk avoidance
Risk avoidance means eliminating the risk by stopping the activity that could cause it. It’s an effective strategy as long as the risk-related activity is not necessary for the company’s objectives.
Risk reduction
Risk reduction means minimising the risk through targeted safety measures. This strategy is effective in cases where the risk is unavoidable but still can be reduced.
Risk transfer
Risk transfer involves shifting the risk to a party that is better equipped to handle it. For example, obtaining insurance coverage for potential damages. This strategy is effective when the risk to the company is unavoidable and cannot be reduced but can still be transferred.
Risk acceptance
Risk acceptance means simply accepting the risk but preparing for the consequences. It’s an effective strategy when the company is left with no choice and is prepared to accept the potential consequences.
How can companies manage residual risks?
Even after implementing risk mitigation strategies, companies may still face residual risks. For example, consider what happens when a company fails to test its business continuity plan. Processes and problems remain unfixed, lessons have been learned but not implemented. Residual risks like these need to be managed step by step.
Risk monitoring and control techniques
Risk monitoring and control techniques enable companies to evaluate the effectiveness of their risk mitigation strategies and quickly identify new ones.
Updating the risk management plan
By updating the risk management plan on an ongoing basis, companies can assess their strategies’ effectiveness. This allows them to update the risk management plan if necessary.
Ongoing improvement of the risk management plan
Ongoing improvement of the risk management plan helps companies stay alert and react quickly when new risks arise. This can prevent risks from escalating out of control. It also creates opportunities for corporate growth, development, and even new markets and technologies.
What are the best practices for risk management?
For effective operational risk management, fostering a risk-aware culture within the company is crucial. This means ensuring employees are aware of potential threats. Risks such as phishing, password theft or data breaches should always be on point.
Providing ongoing training on identifying and reporting those risks will help your company to be on the safe side. Having a risk management team helps a company ensure its processes are effective and meet industry standards. The team identifies potential risks, develops mitigation strategies and monitors and reports on their effectiveness.
Regularly reviewing and updating the risk management plan
Regularly reviewing and updating the risk management plan helps companies ensure its ongoing effectiveness and alignment with business objectives. This process should involve all stakeholders and consider any changes in the business environment and emerging risks.
Effective communication and collaboration
Effective communication and collaboration are critical to effective risk management. It will take involving all stakeholders in the risk management process to identify and address potential risks in good time.
Adapt to changes in the business environment and new risks
Companies must be prepared to adapt to changes in the business environment and new risks. This includes updating risk management policies and processes but also means investing in new technologies or introducing new guidelines.
How DataGuard can help with risk management
Effective risk management is crucial for a company’s success. By continuously identifying, assessing, and managing individual risks, a company can minimize their impact on operations, assets, and reputation.
Need more information about information security risk management? Need some advice on identifying risks or implementing a risk mitigation strategy? We’re happy to help.
DataGuard provides tailored support and expertise to help you implement effective risk management practices in your company. Let us handle your risk management so that you can focus on your core business.
