Risk Management standards and examples
Since the early 2000s, several industries and government bodies have expanded regulatory compliance rules that scrutinize companies’ risk management plans, policies, and procedures.
In an increasing number of industries, boards of directors are required to review and report on the adequacy of enterprise risk management processes.
As a result, risk analysis, internal audits, and other means of risk assessment have become major components of business strategy. Risk management standards have been developed by several organizations, including the National Institute of Standards and Technology (NIST) and the International Organization for Standardization (ISO).
We designed these standards to help organizations identify specific threats, evaluate unique vulnerabilities to identify their risks, identify ways to reduce these risks, and then implement risk reduction efforts in accordance with the organization’s strategy.
The ISO 31000 principles, for example, provide frameworks for risk management process improvements that can be used by companies, regardless of the organization’s size or target sector.
We designed ISO 31000 “to increase the likelihood of achieving the goals, improve the identification of opportunities and threats, and effectively allocate and use resources for risk treatment,” according to the ISO website.
Although we cannot use ISO 31000 for certification purposes, it can help provide guidance for internal or external risk audits, and it allows organizations to compare their risk management practices with internationally recognized benchmarks.
The ISO recommends the following target areas, or principles, should be part of the overall risk management process:
- The process should create value for the organization.
- It should be an integral part of the overall organizational process.
- ِِAnd It should factor into the company’s overall decision-making process.
- It must explicitly address any uncertainty.
- And It should be systematic and structured.
- And It should be based on the best available information.
- We must design it so that it is designed for the project.
- It must take into account human factors, including potential errors.
- And It should be transparent and all-inclusive.
- It should be adaptable to change.
- We should be constantly monitoring and improving it.
The ISO standards and others like it have been developed worldwide to help organizations systematically implement risk management best practices. The ultimate goal for these standards is to establish common frameworks and processes to effectively implement risk management strategies.
These standards are often recognized by international regulators or by targeted industry groups. They are also regularly supplemented and updated to reflect rapidly changing sources of business risk. Although our compliance with these standards is usually voluntary, it may require us to comply with industry regulations or employment contracts.
Risk Management examples
One example of risk management could be a business identifying the various risks associated with opening a new location. They can mitigate risks by choosing locations with a lot of foot traffic and low competition from similar businesses in the area.
Another example could be an outdoor amusement park that acknowledges their business is completely weather-dependent. In order to alleviate the risk of a large financial hit whenever there is a bad season, the park might choose to consistently spend low and build up cash reserves.
Yet another example could be an investor buying stock in an exciting new company with a high valuation even though they know the stock could significantly drop.
In this case, we offer to accept the risk while the investor purchases despite the threat. and feel the potential for a big reward outweighs the risk. If you are looking for a place to take a course in international Professional Certifications through self-study.