How Does ISO 31000 Risk Management System Work for Businesses

The ISO (International Organisation for Standardisation) developed ISO 31000 as the standard for the risk management system, which frames guidelines and strong principles for businesses to manage their risks. Organisations are neither immune from business uncertainties and nor do they possess any magical trick to eliminate a risk as soon as it emerges. Clearly, there has to be a systematic approach comprising of measures or tools to help them deal with risks intelligently. A sound risk management approach is elementary to ensure that the business’s processes are in no way affected when a certain risk occurs. It means ensuring continuity of the operations even in the worst-case scenarios.

While ISO 31000 standard is said to help organisations streamline their risk management, how it helps in that is a matter of concern for many businesses. The next section explains how risk management processes work with ISO 31000 implementation.

Identifying Risks

Risks could not be managed or mitigated unless you know what they are. You need to first know the risks in your business and the simplest definition of risk is ‘any event that has a negative impact on your business goals’. More than that, risks can hamper the growth or survival ability of a business. It possesses a threat to the reputation or brand image, creating strong reluctance in your customers. It can also affect your financial performance. While risks commonly are defined by these consequences, you need to identify your risks from the perspective of your business i.e. what particularly affects your processes, reputation, growth or financial strength.

Keeping Records of Risks

When you have assessed and identified the risks that can probably occur in your business, you should then create a handful of records or a risk library. It would help you in effective management, mitigation or treatment of risks. Having a common repository of all risks helps the organisation in a good way to hold meetings and discussions with other members, talk about the root sources or causes of the risks, classify them into severity categories, and plan measures to mitigate them.

Also, risks can be of different types depending on the source. There are market risks, strategic risks, operational risks, financial risks and insurance risks. Creating a common risk library helps to evaluate each of the risks meticulously by studying their source information and categorise them properly.

Identifying the Risk Owners

For each of the risks recorded in the repository, you need to identify not only the cause or source but also determine the owners. It means you should identify the most responsible person or persons who are going to manage or treat the risks. The owner of the risk is needed to decide associated controls or administrative controls required to control the risk. While there can be more than one owner of a risk, they need to work together to plan appropriate controls by analysing its consequences and probability of occurrence. In other words, controlling the risks is a functional responsibility and hence a team of persons rather than an individual should be assigned as the risk owner.

Assessing Impacts

While controls or measures to mitigate risks must be decided after evaluating their consequences, it is also essential to assess their financial impacts to better aid in management. Knowing how risk can impact the financial performance of a business helps in understanding its severity. Their impacts and severity are essential considerations while taking mitigation actions because the owners can have an idea of the urgency of the situation. For instance, if a risk has a severe financial impact, it is identified as a catastrophe and calls for immediate actions or controls even if it holds less direct consequences on the business processes. Reputational damage also falls under the risks where financial impact is higher because sales in the subsequent period are reduced considerably. Similarly, a risk with a negligent impact on finances can be absorbed, accepted or measures can be taken slowly in mitigating them.

Reviewing the Risk Management Program

Risk management is a continuous process and an integral part of your business management. It needs to be continuously revisited and improved. It should be reviewed annually or quarterly to check whether every risk including the new risks that consistently surface in a business is well covered by the management system. It is necessary for an organisation to update its risk repository from time to time and modify its risk management system accordingly.

A systematic risk management approach under ISO 31000 standard uses three concepts to manage risks effectively - identification, assessment and mitigation. The above five steps include all these concepts which help organisations to prepare and handle any risks consciously. No doubt, the standard promotes a comprehensive way to manage risks with series of processes, which minimise the damage (financially as well as operational) to the business.