While many businesses attempt some form of risk management, few have a flawless approach. And because of the dynamic nature of changing markets and other variables, risk management programs need to be regularly updated or they, themselves, become at risk. Risk calculations based on gravity and likelihood are relatively simple, but simplistic frameworks can’t prepare an organization for surprises down the road.
All organizations should undertake an ERM (enterprise risk management) strategy, projecting into their long-term future where risks might arise, but risk management is complicated, and many organizations are making mistakes. Here are five that can cost your business.
1) Reinventing the Wheel
Many organizations try to create their own risk management framework rather than drawing from the wealth of experience already out there. Yes, your business is uniquely positioned, but a strong risk management framework will take contextual variables into account. By attempting to implement your own risk management framework you’re rejecting experience and expertise developed by professionals, leaving yourself exposed to gaps in your framework that allow risk to creep in.
COSO (Committee of Sponsoring Organizations of the Treadway Commission) and AICPA (American Institute of Certified Public Accounts) have both published industry standard ERM frameworks from which your business can draw. Don’t reinvent the wheel when approaching risk management.
2) Ignoring IT Red Flags
Whilst IT departments are not best placed to lead ERM processes, the insight of your IT department is invaluable when building a risk management strategy, so IT professionals should be viewed as equal partners rather than subordinate teams. This configuration empowers your IT department to contribute valuably to the process of risk management.
“IT is uniquely placed to identify metrics and offer data and analysis that could easily be overlooked from other perspectives,” says Ethan McLaughlin, a risk management expert at State of Writing and Boomessays. “If your organization is conducting a SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis, IT departments are an important place to start examining where risks may be present.”
3) Considering Identified Risks “Managed”
While risks need to be identified before they can be managed and mitigated, too many organizations stop after the first step. By listing potential risks to your organization you have done nothing to reduce their likelihood, and if you aren’t putting robust procedures in place then your strategy is nothing more than a sop.
What’s more, a large proportion of ERM is identifying strategic advantages possessed by your organization. Leveraging these advantages is as important as mitigating risks, and by capitalizing strategically on your position you can place yourself ahead of competitors.
See also: How Risk Management Differs From Insurance
4) Letting Expectations Get Out of Control
ERM does not provide a crystal ball, and sometimes situations unfold in genuinely unpredictable ways. For example, in 2020, risk management frameworks are scrambling to adapt to a radically changed economy in the face of a global pandemic. Judging ERM based solely on its accuracy misses the point.
Don’t let expectations get out of hand, as otherwise faith can be lost in risk management as a whole when the unexpected does occur. This will leave your business vulnerable to any number of things in the future.
5) Keeping Risk Management in-House
We all know that blindspots can appear when we’re too close to an issue, but many organizations consider risk management something that can be handled by internal auditors. In fact, an objective approach is essential, and an external eye can identify risk in seemingly innocuous procedures, something that those with a high degree of familiarity might have overlooked.
“Of course, details are essential in risk management so the in-house team should work closely with external auditors,” says Martin Franklin, a writer at Liahelp and OXessays. "This provides checks and balances that reduce risk and protect your organization in the long run.”
Wrapping Up
Risk management is an essential process that protects organizations from foreseeable fluctuations in future events. Key to the success of risk management are an established ERM, and working closely across departments while introducing an external eye. Putting a positive spin on circumstances is human nature -- and provides a platform for success. Risk management enables this perspective to drive success, rather than leaving you open to catastrophic failure.
