Risk management policy

Developing a Robust Risk Management Policy to Embed Effective Practices

A formal risk management policy provides the foundation for consistently identifying, assessing and responding to key organisational risks across strategy, operations, compliance and finance. Clear policies guide behaviors and ensure diligent risk oversight is ingrained into activities at all levels. This article outlines key elements to include in a comprehensive risk management policy.

Articulating the Risk Management Vision

A vision statement communicates the end goal for risk management, providing context for the policy. It describes the desired culture, objectives and organisation-wide commitment to prudent risk taking delivering sustainable growth. The vision challenges leaders and staff to uphold their shared responsibility to expand opportunity while safeguarding interests of stakeholders.

Clarifying Scope and Objectives

The policy should define its scope and objectives. Which parts of the organisation are covered? What outcomes is the policy designed to achieve in terms of protecting assets, achieving objectives and meeting compliance obligations? Including clear purpose elevates the policy beyond just mandated documentation to serving core governance needs.

Detailing the Risk Management Process

A cornerstone of the policy involves outlining the risk management process to be consistently followed across the organisation. While models vary based on complexity, a typical process entails:

• Identifying risks based on analysis of the operating environment
• Assessing inherent risk severity based on likelihood and impact
• Evaluating the effectiveness of existing mitigations and controls
• Determining residual risk levels
• Comparing residual risk to approved appetite and tolerance thresholds
• Formulating additional mitigation strategies where needed to align risks to acceptable levels
• Assigning accountability for mitigations
• Continuous monitoring through indicators and assurance reviews.
  

Describing Risk Governance Oversight

Effective policies delineate governance oversight roles for risk management. This encompasses:

• The board's responsibilities for setting risk appetite.
• Overseeing enterprise-wide risks and evaluating mitigation strategies proposed by management.
• Delegation of operational risk management to the CEO.
• Engagement of the audit committee or risk committee in detailed policy and control review.
• Input from the CFO and CRO on financial exposures and risk processes respectively.
• Integration of risk considerations into management decision making processes.

Outlining Key Risk Reporting Protocols

The policy should lay out reporting processes enabling oversight of top risks and performance against appetite metrics. Reporting protocols define content, formats, frequency, recipients and escalation procedures for dashboards, risk review meetings, audit and compliance reporting, incident and issue updates, and early warning monitoring for emerging risks. Reporting facilitates transparency and informed governance conversations.

Identifying Risk Management Tools and Processes

Policies reference specific systems and processes employed in risk management workflows. These may encompass risk registers cataloging top risks, libraries of standard controls, key risk indicators and appetite metrics monitored, issues and incident reporting platforms, loss event databases, technology systems like governance and risk management information systems, and analysis models like scenario analysis. Outlining infrastructure provides helpful context.

Setting out Policy Compliance Requirements

Documented policies only achieve impact through instilling disciplined compliance. Sections mandating adherence activities reinforce accountability including: requirements for regular risk capability training, completion of mandatory attestations by staff and leaders, incorporation of policy obligations into individual performance agreements, compliance sign-offs on key decisions, monitoring of policy requirements through audits and checks, and sanctions for deliberate or negligent policy breaches.

Maintaining the Risk Management Policy

A policy is a living document requiring care and feeding as the organization and risk environment evolves. The policy should outline processes for periodic reviews based on lessons learned, audit findings, incidents, industry benchmarking and new or emerging risks. It describes the governance procedures for revising and updating the policy itself as well as sign-off authorities. Version control provides important policy lifecycle discipline.

Inserting risk management policies into day-to-day activities transforms dry compliance into active risk culture. Risk-aware behaviors reflect in decision deliberations, performance processes and collaborative interactions. Leaders at all levels model their commitment through visibly thoughtful risk conduct. A robust policy document provides the rails enabling consistent risk management execution across the enterprise.