Risk Management Policy: Proactive Preparation And Action

A risk management policy is an important component of any successful organization, no matter the type or size. Risk is inherent in any organization, and the identification and management of risk is central to delivering objectives. A formal, recognized policy forms both an organizational risk philosophy as well as tactical risk processes. By developing and distributing a policy related to risk management, the organization embeds the importance of understanding and limiting risk in the mindsets of its stakeholders. The four primary functions of the policy are risk avoidance, risk reduction, risk transference, and risk retention.

The existence of a formal policy increases the chances the organization will achieve its objectives, and where applicable, increases the chances of continued growth. Well-structured and efficient risk management policies help facilitate strategic and operation goals. These policies helped to maximize the value earned from resources by understanding and limiting risks. Consequently, the risk manager can actually encourage investment in progressive and innovative projects by mitigating the risks and threats associated with these types of opportunities. A successful policy introduce risk controls, formal lines of communication, benchmarks, and systematic review. Beyond the vital role of the risk manager, a risk management policy helps to ensure buy-in from stakeholders, and should include training, monitoring, and reporting processes to maximize effect.

The types of organizations that would benefit from a risk management policy are both numerous and diverse. These policies apply to any organization that is exposed to inherent risk in their operations and projects. This includes, among others;

* Businesses (sole-proprietorship"s, limited partnerships, corporations)
* Academic institutions
* Charities
* Professional associations
* Governments (Federal, State, Provincial, Municipal)

A risk management policy should be developed with the assistance of a risk management professional. While this individual has the required expertise to leverage existing risk management practices or create practices where necessary, the role of existing stakeholders in the process should not be discounted. The insight of these current stakeholders is a vital resource in the policy development and implementation process. A successful policy can be developed from a Risk Analysis Template, but there are both advantages and disadvantages to this approach.

An important aspect of any successful risk policy is the development and implementation of a risk-metrics dashboard. These dashboards can quickly and accurately inform management that a threat they had foreseen but were unable to avoid has indeed impacted the organization. A risk dashboard can include quantitative data-driven metrics, such as sales and market share figures, as well as qualitative indicators, such as social networking tracking and industry scanning. It is the task of the risk management team to design, implement, and monitor these metrics and provide concise reports to the senior management team. The format of these reports should be set-out by the risk policy, as standardized reporting templates often leads to effective communication between analysts and management.

Another important component of the risk management policy is the action plan process, especially following the occurrence of a risk event that could not avoided or transferred. This reaction plan must be vetted during its development and again during each of its uses for its alignment with the objectives of the project and the organization. In all cases, before and after possible risk events, actions plan must be vetted for their compatibility with other components of the organizations operation: insurance standards, employee skills, stakeholder availability, and company resources.