How to create an Organizational Risk Management framework
By: Chris Ekai
Tags: Risk Identification, Coso Erm, Iso 31000, Risk Management, Risk Analysis

How to create an Organizational Risk Management framework

Risk management frameworks are sets of principles and practices that help organizations identify, measure, manage, monitor, and control their risk. There are many different types of risk management frameworks to choose from based on specific needs, such as a particular industry or country. Risk managers and consultants can use these various frameworks to better understand the organization’s unique risks and develop appropriate responses.

This blog post will review two popular risk management approaches, ISO 31000:2018 and COSO ERM Framework. Each briefly introduced below, followed by a summary table with critical features for each framework’s approach to identifying, measuring, managing, and monitoring/controlling risks- along with links for more information about each framework. These frameworks guide risk management without prescribing a risk management approach.

The general descriptions of the two frameworks are as follows: -ISO 31000:2018, risk management framework by risk managers and practitioners worldwide. It is a risk management standard “aimed at helping risk managers worldwide to develop and implement risk management in their organizations.” ISO 31000:2018. COSO Enterprise Risk Management (ERM) Framework is a risk assessment approach developed by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The ERM framework consists of risk assessment, risk monitoring, and control activities organized into five components: (1) business governance, (2) control environment, (3) risk identification and analysis, (4) risk response planning, and (5) monitoring controls & performance.

The benefits of risk frameworks are:

-An organization’s risk culture becomes consistent throughout the entire organization. organization culture has an impact on the risk culture of risk management

-Risk frameworks help risk managers make risk assessment more effortless and more systematic, thus enabling them to manage risk better. It also allows organizations to explain to their stakeholders why they are taking specific risk mitigation measures and how these may affect stakeholders.

-Risk management becomes a more integrated part of an organization’s planning, budgeting, risk identification, risk assessment processes, and activities.

-Risks are identified systematically over time instead of sporadically. Identifying risks on an ongoing basis reduces the chance they will be overlooked or forgotten. Risks are considered from the strategic level through to the tactical level. All projects should have risk analysis performed at each phase/step in the project lifecycle during product development and implementation.

When to use each framework

a) ISO 31000:2018, risk management framework

This is a precursor to ISO 31000:2009 risk management standard giving out principles and practices of risk management standards. The ISO 31000:2018 standard was developed to help ensure that today’s organizations are prepared for the future. It outlines a comprehensive framework, tools, techniques, and guidance on managing risks in any size organization or industry sector — from local government agencies through multinational corporations.

This provides an easier means of managing both internal and external hazards while also providing guidelines on who should be involved with this process — everyone! The management team sets the tone throughout their company, so they need to understand what they can do themselves and delegate responsibility where appropriate. Employees need training programs explicitly tailored towards their departmental needs; contractors must have clear contractual obligations set forth before starting work within your environment; there are many risk management factors.

The risk management framework is structured in a risk identification process that identifies risk sources and then risk assessment processes, which help determine the likelihood of the risk occurring and quantify its impact.

After risk analysis, the risk response process helps operationalize controls to mitigate identified risks. The risk monitoring and review processes are vital to ensuring strategies are staying on target to meet objectives. All activities should be reported or documented so organizations can track progress toward goals and document these activities for future reference.

b)COSO enterprise risk management framework

This is a risk assessment approach developed by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), risk management, risk assessment, risk monitoring, and control activities organized into eight components: Internal environment — Establishes the tone of the organization, influencing risk appetite, attitudes towards risk management and ethical values.

Objective setting — The board should set objectives that support the organization’s mission and which are consistent with its risk appetite

Event identification — Organizations should identify internal and external events that affect the achievement of their objectives.

Risk Assessment — The likelihood and impact of risks are assessed as a basis for determining how to manage them.

Risk Response — Management selects appropriate actions to align risks with risk tolerance and risk appetite.

Control Activities — Policies and procedures should operate to ensure that risk responses are effective.

Information & Communication — Information systems should ensure that data is identified, captured, and communicated in a format and timeframe that enables managers and staff to carry out their responsibilities.

Monitoring — The management system should be monitored and modified if necessary.

The risk management framework is structured in a risk identification process that identifies risk sources and then risk assessment processes, which help determine the likelihood of the risk occurring and quantify its impact. After risk analysis, the risk response process helps operationalize controls to mitigate identified risks. The risk monitoring and review processes are crucial to ensuring strategies are staying on target to meet objectives. All activities should be reported or documented so organizations can track progress toward goals and document these activities for future reference.