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A Beginner’s Introduction to ISO 31000: Risk Management

Risk management is important to maximize your organization's potential.

ISO 31000- A Beginner’s Introduction to illustration image

What is ISO 31000?

ISO 31000 is a universal set of standards related to risk management (which is defined as the identification, evaluation and prioritisation of risks).

 

It offers principles and guidelines for organisations seeking to manage professional risks that are legal, economical and reputational, and which can negatively impact an organisation.

 

ISO 31000 provides a common approach to managing any type of risk and is not industry or sector specific. This standard can be applied and adapted for any public, private or community organisation.

 

You can read the full ISO 31000 guidelines here.

How do you manage a risk?

Firstly, you must identify all risks that your organisation is exposed to in its operating environment. The risks will then need to be assessed on their severity and how much they would affect the business if they were to happen.

 

After you identify a risk and assess its likelihood and impact, you must decide on an appropriate way of treating the risk, this is done by developing a risk treatment plan. The objective of the plan is to reduce the likelihood of the risk occurring and minimise the impact of the risk. There are four main types of risk treatment:

 

  • Risk acceptance – This is when no action is taken to mitigate the risk. This may be done if the cost of mitigating the risk outweighs the risk itself, so it makes more sense to simply accept the risk.

 

  • Risk transference – This is when the risk is transferred to an external party via a contract, who are then in charge of treating it for you. This does not eradicate the risk, the responsibility just shifts from one organisation to another. For example, people pay for travel insurance so that in case of an accident, they avoid huge financial consequences. Similarly, in the workplace you may outsource work and the risks that come with it.

 

  • Risk avoidance – This is when you eliminate the risk from happening by not taking any actions where the risk could potentially occur. For example, if you analyse the risks involved in an investment and decide it’s too risky, you may simply opt out of investing and avoid any risks altogether. Risk avoidance should be reserved for risks with major impact on the organisation if they occur.

 

  • Risk reduction -This is when you take actions preventing or reducing the impact of the risk, making the risk less severe overall. Choosing this approach requires you to work out which actions can be taken to make the risk more manageable.

 

Choosing a treatment depends on the risk. You should have a thorough understanding of the risk and how it involves your organisation in order to make a judgement on the most appropriate treatment to take.

 

After treatment, monitor and review the risks regularly.

What is the Importance of Risk Management?

Risk management is an integral part of everyday business, which provides an organisation with the necessary tools to identify and deal with potential risks. It helps businesses consider the full range of risks they face.

 

Risk management ensures that you are complying with industry standards and makes your business practises transparent to all parties. It also improves efficiency and safety within your processes, and helps save you money overall.

What is a Risk Assessment?

Risk assessments are a part of the whole risk management process, and should be repeated regularly. A risk assessment consists of identifying, analysing and evaluating a risk.

 

Risk assessment is not the same as risk management. Risk management is an umbrella term that includes risk assessment as a key stage. Risk assessment is then followed by the risk treatment stage which is described above.

Conclusion

To make the most out of the ISO 31000 standard, customise the process to the needs of your organisation. Make sure that everyone in top management is fully committed to the risk management process, and that it is integrated across all levels and departments of the organisation. Continue to develop a strong and aligned risk culture within your business, as this will help maintain a successful risk management system.

 

Risk management, ideally, should be proactive, and should prepare your business for risks that are yet to happen as well as those that have happened before.

 

Hopefully, this blog has given you more insight into how risk management works and its importance in business processes.

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