While every business faces some measure of risk, one of the ultimate factors in any successful enterprise is an effective risk management program. One of the most difficult things for any business owner to consider is the threats and vulnerabilities to the business. However, facing these risks head on through careful planning and evaluation can help ensure your company is fortified against the many risks and vulnerabilities that exist today.
Identify and Assess the Risks
A good risk management plan will start by identifying your business goals and objectives and determine the individual risks and impact to which they are a threat to your business. The types of risks your business faces depend on the type of business it is, but most risks tend to affect financial, business operations, compliance with laws and regulations, technology, and/or overall business strategy.
Identifying each individual risk and assessing its threat level allows you to tackle the most severe risks first. Once identified, it is crucial to consider the likelihood of the threat actually occurring and its impact on your business. For example, cloud-based businesses might need to examine how the loss of power for one hour, 12 hours or even more than 24 hours will affect their business and how likely it is to happen. What about a negative review from a customer, newspaper or blog? How likely is it that a cyber-attack could affect your systems environment and data? Once you identify the risks, you can then identify strategies for each specific risk.
Examine Current Controls
Most businesses anticipate some risks before they launch and take measures to lower those risks. If you already have controls in place, you need to examine them regularly to evaluate their effectiveness. You should be able to grade the effectiveness of current controls on a scale from non-existent (or ineffective) to very strong. Controls should be in place to address each of the risks identified in the early steps of a risk assessment – based on the mitigation strategies that were developed along with the identification of the risks.
It is also important to note that just because you grade a control as very strong does not mean that no changes need to be made. For example, controls against a cyber attack might currently be effective, and so you grade them as very strong. However, cyber attacks evolve quickly, and current controls might need some form of an update in order to maintain that very strong status. You then need to move on to a plan of action. Continuous evaluation of controls and associated risks is crucial to ensuring you have an effective risk management program.
Create a Plan of Action for Each Risk
Because every individual risk slightly different in nature, your business needs a plan of action for each one. Your plan of action for cutting off a hacker in your servers will differ from your protocols for when the CFO suddenly steps down from his or her position. There are four main strategies to addressing these risks: reducing, transferring, accepting, and avoiding.
- Reducing the risk means taking the steps to mitigate it while still realizing the risk is possible.
- Transferring involves basically insuring against the risk, so even if the risk becomes a reality, you have the means to recover from it.
- Accepting means being willing to pay for the cost of the risk by not developing any controls – which is sometimes appropriate for a minor risk when the cost of reducing it outweighs the risk itself.
- Avoiding the risk is staying away from the risk entirely; however, while this nullifies the damaging effects of the risk, it also negates any potential benefits of taking said risk.
Once you have created a satisfactory plan for each risk, it is crucial to implement the plan which includes documenting and creating controls, as well as ensuring all employees involved in the plan clearly understand roles and responsibilities for each risk. Assigning a management-level owner for each risk is a good way to ensure there is accountability for each risk.
Monitor Effectiveness of Each Plan
Implementation should be the beginning of the monitoring process. It is now time to see how your plans fare in the real world. There is no ‘silver bullet’ as it relates to monitoring the effectiveness of your controls; the most important thing is to ensure the plan is monitored on a regular basis. Effective risk management programs should be dynamic in that they never remain completely the same – they should be updated to include new risks, new situations, and new aspects of your enterprise. Tackling them all at once in a comprehensive review can seem daunting, so it is easier to monitor effectiveness of smaller individual items more frequently and perform a comprehensive evaluation occasionally.
To ensure the successful monitoring of your plans, it helps to include target dates for completion. As you meet these goals, you can better decide if your controls are working as expected or if they need further adjustment.
Re-Evaluate and Start Again
Once you have determined the effectiveness of your controls, the process starts again. Effective risk management programs do not have an end. As long as you are in business, there are risks, and those risks change with time. The good news is that once you have a program in place, it is much like an exercise routine – you become familiar with the process, and once you get through it, your business is likely to be better for having done it. For more details regarding enterprise risk management programs, contact Barr Assurance & Advisory Inc. today.