The risk landscape changes dynamically over time, and your risk management plan needs to evolve in tandem.
According to the 2022 Global State of Enterprise Risk Oversight, 60% of respondents agree that the volume and complexity of risks have increased in recent years. Yet only about a third of organizations have complete enterprise risk management (ERM) processes in place.
Gone are the days when risk could be effectively managed by a department or team that simply went through a checklist and reported to management.
Modern organizations must integrate strategy and a comprehensive ERM plan that involves every function to avoid damaging surprises while unlocking valuable opportunities.
Organizations that want to transform their risk management plans can start by taking these four steps:
Prepare for increased risk
Risk has always been part of business operations, but firms and organizations surveyed in the 2022 Global State of Enterprise Risk Oversight report agree that risk will continue to intensify in the future.
Companies face a wide range of risks related to geopolitical tensions, supply chain disruptions, environmental disasters, cybersecurity, emerging technologies, human rights abuses and global health emergencies, among others.
An ERM plan guides leaders in creating comprehensive responses to potential risks your companies may experience. As an example, let’s say your company reviewed data from the World Health Organization about upward trends in infectious diseases. You may have then started forming a pandemic preparedness plan. This plan may have involved adopting new technology, drafting policies for remote working and seeking opportunities to localize your supply chain.
Involve every function in risk management
Risks rarely affect just one organizational function, which is why a siloed approach won’t work. Because crises have cascading consequences, a representative from each function should be included in the risk management planning process.
A cybersecurity breach, for example, affects all staff, and many teams will have a role to play in recovery efforts. HR and leadership teams will need to notify employees about the problem and instruct them on how to proceed. Communications teams will need to write announcements to inform staff, vendors and customers of how the organization is dealing with the issue. Finance teams will need to assess the damage and develop a budget for repairing and improving security systems. And IT will need to get systems back up and running and make sure company data is safe and secure.
A diverse planning team can provide a range of viewpoints and reduce the likelihood that your organization will fall victim to dangerous blind spots.
Equip your teams with effective tools
Your organization will be better able to manage risk if you equip your employees with useful tools.
Modern risk management technology can collect and analyze enormous amounts of data. And you can use technology to monitor supply chains, political unrest in office locations, cybersecurity and other risks.
However, technology alone is not the answer. Organizations need talented employees who can leverage these tools to generate insights and find creative solutions to problems.
Companies should train employees to effectively manage risk and include risk management in performance reviews and compensation plans. For example, employees should know the basics of cybersecurity to keep client data safe and teams should consider potential climate threats when selecting new office and supplier locations. Few organizations — less than one third according to the 2022 Global State of Enterprise Risk Oversight report — provide formal training on risk management.
Incorporate risk mitigation into strategic goals
Organizations that effectively monitor and evaluate risk are better positioned to both sidestep disaster and identify opportunities.
For example, climate change is increasing the risk of natural disasters, but it could also be a chance for renewable energy investment. And the pandemic brought myriad risks and drove many teams out of the office but expanded the pool of potential employees to the entire world for newly remote organizations.
Leaders should integrate risk management into strategy development and decision-making. Each major decision your organization makes will come with some level of risk, so it’s important to understand what those risks are and whether they align with your company’s risk tolerance.
The best leaders find a balance between risk and reward that fits with the organization’s stated values and mission.
If you would like to strengthen your skills and transform your organization’s risk management strategy, enroll in the updated COSO Enterprise Risk Management Certificate Program today.