Principles of risk management explained

Following the principles of risk management can help your organisation manage risk in the best possible way. This is important to ensure your organisation is protected from the various threats it may face. It’s also important because, if done well, risk management can create opportunities for your business.

Applicable to all types of organisation, the ISO 31000 standard provides useful guidelines for managing risk. One way it does this is through the ISO 31000 risk management principles. This blog outlines what these principles are and the benefits of following them.

Let’s get into it.

What is risk management?

Risk management is the process of identifying, assessing, treating, monitoring and reporting on the risks that could affect your organisation’s ability to achieve its objectives. Done well, it protects your organisation from threats and helps you spot and act on opportunities. The ISO 31000 principles set out what good risk management looks like, and Ideagen Risk Management can help you put them into practice.

What are the principles of risk management?

The ISO 31000 risk management principles aim to help your organisation improve how it manages risk, so that you can create and protect value. They also make your risk management processes more efficient and effective.

Below, we explain the eight principles of risk management outlined in the international standard.

• Integrated – Make risk management a focus of all your organisation’s activities, and integrate it throughout the organisation.
• Structured and comprehensive – To achieve consistent results, your approach to risk management needs to be well organised and thorough. It can’t be haphazard or sloppy, as this only leads to failures down the line.
• Customised – Every organisation is different. Make sure your risk management framework and process are tailored to your organisation, the context in which it operates and its objectives.
• Inclusive – Where appropriate, involve stakeholders in the risk management process. A stakeholder is a person or organisation that can affect, or be affected by, your decisions or activities. Considering their knowledge, views and perceptions gives you valuable insight to improve awareness and inform risk management.
• Dynamic – The risk landscape is constantly changing, as is your organisation. Don’t get stuck in a rut. Your organisation should be able to anticipate, identify, acknowledge and respond to all kinds of risk, whether new, changing or no longer a concern, and to do so quickly and appropriately.
• Best available information – A robust risk management process relies on past and present data and expectations for the future, as well as the limitations and uncertainties surrounding that information. All information must also be timely and accessible to the stakeholders who need it.
• Human and cultural factors – Don’t forget human behaviour and company culture, such as your organisation’s capabilities and goals, or stakeholder objectives. Factors like these can significantly affect risk management, so recognise them within your risk management activities.
• Continual improvement – There is always more to learn, and the same is true of risk management. Through experience and new learning, your approach to risk management should continually improve.

The benefits of applying the principles of risk management

When the principles of risk management are not followed, risk is often approached in a disorganised way that can have spiralling consequences. For example, if a manufacturer does not check the quality of materials from a supplier, it risks creating a sub-standard product. This could lead to recalls, replacements, refunds, machine downtime, delays in re-supply and ongoing damage to its reputation. The list goes on.

By applying the principles of risk management, it becomes easier to handle risks like this. You can ensure that:

• Your approach to risk management is organised rather than chaotic. This can prevent failures and the higher costs associated with them, which protects the overall value of your organisation.
• Your organisational risks are managed more easily. Poorly managed risks can spread further than the initial failure and make matters worse.
• Your reputation is protected. A poor reputation can mean less new business and the loss of existing customers, which you can avoid when risk is managed more effectively.
• You can identify potential hazards. Once identified, you can act to reduce the damage if the risk occurs, or remove the risk completely.
• You can identify possible opportunities. Acting on these can add value to your organisation.