Risk Management Principles and Framework Overview
Explore the fundamental principles, framework, tools, and strategies of risk management in this comprehensive guide. Learn about the importance of risk management in organizations and how to effectively implement risk management practices to protect against threats and achieve objectives.
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RISK MANAGEMENT BASIC PRINCIPLES, FRAMEWORK, STRATEGY AND TOOL 10/9/2024 1
OUTLINE INTRODUCTION RISK MANAGEMENT PRINCIPLES RISK MANAGEMNT FRAMEWORK RISK MANAGEMENT TOOLS POLICY AND GUIDELINES RISK MANAGEMENT ARCHITECTURE RISK MANAGEMENT STRATEGY RISK MANAGEMENT PROTOCOLS RISK REGISTER CONCLUSION CASE STUDY 10/9/2024 2
INTRODUCTION Imagine Imagine a a discipline discipline without concepts, concepts, principles, principles, standards its its practitioners practitioners. . without its standards and its own own common common set and practices practices that set of of assumptions, assumptions, that are are unique unique among among Does Does this this sound sound familiar? familiar? Of Of course course it s it s child child rearing rearing. . You You got got it! it! Children Children reared things things - - assumptions, assumptions, concepts, culture, culture, beliefs, beliefs, identity, identity, race all all very very different different and and presumably reared in in different different parts concepts, principles, race relation, relation, gender, presumably very parts of of the the world world are principles, standards, gender, social very confused! confused! are taught taught different standards, practices, social conditioning conditioning different practices, 10/9/2024 3
INTRODUCTION Every Every discipline discipline has principles, principles, standards standards and practitioners practitioners. . has its its own own common common set and practices practices that set of of assumptions, assumptions, concepts, that are are unique unique among concepts, among its its Risk Risk management management is is without of of assumptions, assumptions, concepts, that that together together form form the without exception exception. . It It has concepts, principles, principles, standards, the risk risk management management discipline its own own common common set standards, practices practices and discipline. . has its set and tools tools It It is is imperative imperative for to to understand understand and risk risk management management. . for organizations organizations and and use use these these fundamental and risk fundamental tenets risk management management practitioners tenets in in the practitioners the practice practice of of 10/9/2024 4
INTRODUCTION The The practice practice of of risk tenets tenets which which provide is is designed designed and and implemented risk management management will provide the the foundation implemented. . will be be incomplete incomplete without upon which which risk without these risk management management these foundation upon There There may these these canons canons due may be be differences differences in in the due to to organizational organizational differences the language language used differences. . used and and applications applications of of However, However, the threaten threaten objectives objectives. . the objective objective remains remains the the same same: : to to manage manage risks risks that that 10/9/2024 5
INTRODUCTION A A risk risk management management system arrangements, arrangements, structures, that that are are designed designed and and and operational operational policies system is is a a series structures, relationships, relationships, processes and embedded embedded into policies and and practices practices. . series of of coordinated coordinated organizational processes and into the the organization s organization s strategic organizational and procedures procedures strategic The The principles principles of of risk and and purpose) purpose) for management management system risk management management provide for establishing establishing and system. . provide a a sound and implementing implementing an sound basis an effective basis (intention (intention effective risk risk 10/9/2024 6
PRINCIPLES OF RISK MANAGEMENT The The principles principles are are as as follows follows: : Risk Risk management management creates creates and should should contribute contribute to to the the demonstrable demonstrable achievement and and improvement improvement of of performance performance in, compliance, compliance, human human health health and regulatory regulatory compliance, compliance, public protection, protection, product product quality, quality, project operations, operations, corporate corporate governance governance and and protects protects value value risk achievement of of objectives in, for for example, example, tax and safety, safety, security, security, legal public acceptance, acceptance, environmental project management management; ; efficiency and reputation reputation. . risk management management objectives tax and legal and environmental efficiency in in 10/9/2024 7
PRINCIPLES OF RISK MANAGEMENT The The principles principles are are as as follows follows: : Risk Risk management management is is an an integral processes processes risk risk management management should activity activity that that is is separate separate from from the the the organization organization. . Risk Risk management management is is part of of management management and and an an integral processes, processes, including including strategic strategic planning, change change management management processes processes. . integral part should not the main main activities part of of all not be activities and part of of the part of of all project management management and all organizational organizational be a a stand stand- -alone and processes processes of of the responsibilities responsibilities all organizational organizational alone integral part planning, project and 10/9/2024 8
PRINCIPLES OF RISK MANAGEMENT The The principles principles are are as as follows follows: : Risk Risk management management is is part part of of decision should should help help decision decision makers makers make actions actions and and distinguish distinguish among among alternative decision- -making make informed informed choices, alternative courses courses of of actions making risk risk management management choices, prioritize prioritize actions. . Risk Risk management management explicitly management management should nature nature of of that that uncertainty explicitly addresses should explicitly explicitly take uncertainty and and how addresses uncertainty take account account of of uncertainty, how it it can can be be addressed addressed. . uncertainty risk uncertainty, the risk the 10/9/2024 9
PRINCIPLES OF RISK MANAGEMENT The The principles principles are are as as follows follows: : Risk Risk management management is is systematic, systematic, structured management management should should be be a a systematic, approach approach to to dealing dealing with with internal vulnerabilities vulnerabilities to to the the organization s organization s objectives contribute contribute to to efficiency, efficiency, and reliable reliable results results. . structured and systematic, structured internal and and external and timely timely risk structured and external threats threats and objectives and and should consistent, comparable comparable and risk and timely timely and should and and to to consistent, 10/9/2024 10
PRINCIPLES OF RISK MANAGEMENT The The principles principles are are as as follows follows: : Risk Risk management management is is based based on the the inputs inputs to to the the risk risk management management process information information sources sources such such as as historical stakeholders stakeholders feedback, feedback, observations, judgement judgement. . However, However, decision decision makers of of and and take take into into account account any any limitations used used or or the the possibility possibility of of divergence divergence among best available available information process are historical data, data, experience, observations, forecasts forecasts and makers should should inform limitations of of the the data among experts experts. . on the the best information are based based on experience, and expert inform themselves themselves data or or modelling modelling on expert 10/9/2024 11
PRINCIPLES OF RISK MANAGEMENT The The principles principles are are as as follows follows: : Risk Risk management management is is transparent transparent and and and timely timely involvement involvement of of all all stakeholders decision decision makers makers at at all all levels organization organization is is required required to to ensure relevant relevant and and up up- -to to- -date date. . Involvement Involvement also be be properly properly represented, represented, informed informed and into into account account in in determining determining risk and inclusive inclusive appropriate, stakeholders and and in in particular, levels within within and and outside ensure that that risk risk management management remains also allows allows stakeholders and to to have have their risk criteria criteria and and risk risk treatments appropriate, full particular, outside of of the full the remains stakeholders to to their views views taken treatments. . taken 10/9/2024 12
PRINCIPLES OF RISK MANAGEMENT The The principles principles are are as as follows follows: : Risk Risk management management is is tailored tailored risk aligned aligned with with the the organization s organization s internal risk risk profile profile. . risk management management should internal and and external external contexts should be contexts and be and Risk Risk management management is is dynamic, risk risk management management should change change. . As As external external and knowledge knowledge change, change, monitoring risks risks emerge, emerge, some some change dynamic, iterative should continually continually sense and internal internal events monitoring and and review change and and others others disappear iterative and and responsive responsive to to change sense and and respond events occur, occur, context review of of risk risk take take place, disappear. . change respond to to context and place, new and new 10/9/2024 13
PRINCIPLES OF RISK MANAGEMENT The The principles principles are are as as follows follows: : Risk Risk management management facilitates facilitates continual organization organization organizations organizations should strategies strategies to to improve improve their their risk all all other other aspects aspects of of their their organizations organizations. . continual improvement improvement of of the should develop develop and risk management management maturity maturity alongside the and implement implement alongside 10/9/2024 14
RISK MANAGEMENT FRAMEWORK The The risk risk management management principles principles and and framework framework are are closely closely related related. . While While the implementing implementing effective provides provides the the system organization s organization s policies, the principles principles provide effective risk system and policies, processes provide the risk management management system, and structure structure that processes and and procedures the bases bases for for establishing establishing and system, the the framework that are are integrated integrated into procedures. . and framework into the the The The framework framework consists consists of of risk risk architecture, architecture, strategy strategy and and protocols protocols. . 10/9/2024 15
RISK MANAGEMENT FRAMEWORK The The architecture architecture is is the the schematic schematic structure and and responsibilities responsibilities: : Committee Committee structure structure and and terms Roles Roles and and responsibilities responsibilities; ; Internal Internal reporting reporting requirements requirements; ; External External reporting reporting controls controls; ; and Risk Risk management management assurance assurance arrangement structure that that establishes establishes roles roles terms of of reference reference; ; and arrangement. . 10/9/2024 16
RISK MANAGEMENT FRAMEWORK The The strategy strategy provides provides a a broad broad course management management objectives objectives: : Risk Risk management management philosophy philosophy; ; Arrangements Arrangements for for embedding embedding risk Risk Risk appetite appetite and and attitude attitude to to risk Benchmark Benchmark tests tests for for significance significance; ; and Specific Specific risk risk statements statements and and policies course of of actions actions to to achieve achieve the the risk risk risk management management; ; risk; ; and policies. . 10/9/2024 17
RISK MANAGEMENT FRAMEWORK The The protocols protocols provide provide the the ground carried carried out out : : Tools Tools and and techniques techniques; ; Risk Risk classification classification system system; ; Risk Risk assessment assessment procedures procedures; ; Risk Risk control control rules rules and and procedures procedures; ; Responding Responding to to incidents, incidents, issues Documentation Documentation and and record record keeping Training Training and and communication communication; ; ground rules rules and and procedures procedures to to be be issues and keeping; ; and events events; ; 10/9/2024 18
RISK MANAGEMENT FRAMEWORK Audit Audit and and assurance assurance procedures procedures and Reporting, Reporting, disclosures disclosures and and certification and protocols protocols; ; certification. . Risk Risk management management framework Plan Plan: : Identify Identify intended intended benefits board board support support; ; Plan Plan the the scope scope of of risk common common language language of of risk Establish Establish common common risk roles roles and and responsibilities responsibilities. . framework has has four four inter inter- -related related stages stages: : benefits of of risk risk management management initiatives initiatives and and gain gain risk management management initiatives risk; ; and and risk management management strategy, initiatives and and develop develop strategy, framework framework and and 10/9/2024 19
RISK MANAGEMENT FRAMEWORK Implement Implement: : Adopt Adopt suitable suitable risk risk management management tools classification classification system system; ; Establish Establish risk risk benchmark benchmark (risk assessment assessment; ; and and Determine Determine risk risk appetite appetite and existing existing controls controls. . tools and and an an agreed agreed risk risk (risk criteria) criteria) and and undertake undertake risk risk and risk risk tolerance tolerance levels levels and and evaluate evaluate the the 10/9/2024 20
RISK MANAGEMENT FRAMEWORK Measure Measure: : Evaluate Evaluate effectiveness effectiveness of of existing improvements improvements; ; and and Embed Embed risk risk- -awareness awareness culture culture and other other activities activities in in the the organization organization. . Learn Learn: : Monitor Monitor and and review review risk risk performance management management contribution contribution; ; and Report Report risk risk performance performance in in line improvement improvement. . existing controls controls and and introduce introduce and align align risk risk management management with with performance indicators and line with with obligations indicators to to measure measure risk risk obligations and and monitor monitor 10/9/2024 21
RISK MANAGEMENT TOOLS The The most most fundamental fundamental tool capacity capacity with with the the competences, competences, expertise culture culture. . tool to to risk risk management management is is the expertise and the human human risk- -awareness awareness and risk Every Every risk knowledge, knowledge, skills, those those tools tools. . risk management management tool skills, awareness tool is is useful awareness and useful in in so so far and competences competences to to adopt far there there is is accompanying accompanying adopt and and use use 10/9/2024 22
RISK MANAGEMENT TOOLS A A large large proportion proportion of of risk human human interactions interactions. . risk is is identified, identified, analyzed analyzed and and treated treated through through Organizations Organizations therefore skills skills and and attitude attitude to to effectively therefore need effectively manage need personnel personnel with manage risk with the risk . . the right right knowledge, knowledge, The The lack the the organization organization. . lack of of such such knowledge, knowledge, skills skills and and attitude attitude poses poses potential potential risk risk to to 10/9/2024 23
RISK MANAGEMENT TOOLS Risk Risk management management is is based based on and and intelligence) intelligence) and and the essential essential tool tool for for risk risk management management. . on information information science the creation creation and science (data, and use use of of information (data, information information information is is an an Another Another fundamental fundamental tool data data warehouse warehouse and techniques techniques to to analyze, tool for and data data extraction analyze, translate translate and for risk extraction and and use use such risk management management is is a a database and analysis such database database. . database a a analysis tools tools and and 10/9/2024 24
RISK MANAGEMENT TOOLS There There are are many many bespoke bespoke and analysis analysis software software available available for and off for use use in in risk off- -the risk management management. . the- -shelf shelf data data extraction extraction and and Organizations Organizations need interfaces interfaces all matching matching and and logical need to to build all data data across across the logical manipulations manipulations. . build data the organization organization to to enable data warehouse warehouse that that seamlessly seamlessly enable data data mining, mining, 10/9/2024 25
RISK MANAGEMENT POLICY AND GUIDELINES An An organization organization needs needs to to develop language language that that is is consistent consistent across develop a a common across the the entire entire entity common risk entity. . risk management management The The role common common language role of of risk language. . risk management management policy policy is is to to lay lay the the foundation foundation for for such such A A risk risk management management policy direction direction and and scope scope of of an policy is is a a statement an organization s organization s risk statement of of overall risk management management initiatives overall intentions, intentions, initiatives. . 10/9/2024 26
RISK MANAGEMENT POLICY AND GUIDELINES A A risk risk management management guideline guideline specifies for for the the interpretation interpretation and and implementation implementation of of policy specifies the the step step- -by policy. . by- -step step procedure procedure Guidelines Guidelines define logical logical classification classification and context context of of the the organization define the the implementation implementation modalities and proposition proposition that organization. . modalities of of policy that are are actionable actionable within policy and within the and a a the 10/9/2024 27
RISK MANAGEMENT ARCHITECTURE Risk Risk management management architecture architecture consists Committee Committee and and terms terms of of reference risk risk governing governing bodies bodies at at the levels levels to to provide provide oversight, oversight, direction management management. . consists of of the reference there the board board and direction and the following following elements there should should be and executive executive management and supervision supervision over elements: : be structured structured management over risk risk Roles Roles and responsibilities responsibilities for process process. . and responsibilities responsibilities there for all all responsible there should parties in in the should be be clear clear roles the risk risk management management roles and and responsible parties 10/9/2024 28
RISK MANAGEMENT ARCHITECTURE Internal Internal reporting reporting requirements requirements management establish establish clear clear reporting reporting requirement individuals individuals to to provide provide accountability accountability of of their resources resources. . management and requirement and and board board should and responsibility responsibility for their actions actions and should for and use use of of External External reporting place place for for dissimilating confidentiality confidentiality and reporting controls dissimilating information and data data privacy controls there information to to outside privacy policies policies. . there should should be outside parties be clear clear controls parties subject controls in in subject to to 10/9/2024 29
RISK MANAGEMENT ARCHITECTURE Risk Risk management management assurance assurance arrangement executive executive management management should should establish independent independent check check and and assurance effectiveness effectiveness of of the the risk risk management management process arrangement the establish a a system assurance on on the process. . the board board and system that that provides the adequacy adequacy and and provides and 10/9/2024 30
RISK MANAGEMENT STRATEGY Risk Risk management management strategy strategy consists Risk Risk management management philosophy philosophy the management management should should form form a a system that that characterize characterize how how risks the the organization organization. . the following following elements the board board and system of of shared shared beliefs risks and and risk risk management management are consists of of the elements: : and executive executive beliefs and and attitudes are viewed viewed in in attitudes Arrangements Arrangements for management management should procedures, procedures, activities for embedding embedding risk should be be embedded embedded into activities and and responsibilities responsibilities. . risk management management risk into organizational organizational processes, risk processes, 10/9/2024 31
RISK MANAGEMENT STRATEGY Risk Risk appetite appetite and and risk risk attitude management management should should set set and appetite appetite (the (the level level of of risk) risk) that and and risk risk attitude attitude ( ( behavior) behavior) toward attitude the and communicate communicate the that the the organization organization is is willing toward risk risk. . the board board and the organization s organization s risk willing to to accept and executive executive risk accept Benchmark Benchmark tests and and strategy strategy should significance significance and tests for should have and severity severity of of risks for significance significance the have thresholds risks. . risk management management policy thresholds for for determining determining the the risk policy the 10/9/2024 32
RISK MANAGEMENT STRATEGY Specific Specific risk risk statements statements and framework framework should should have have rules and policies policies the rules for for specific specific risk the risk risk categories categories. . risk management management Risk Risk assessment assessment techniques should should have have established analysis analysis and and evaluation evaluation. . techniques the established methodologies methodologies for the risk risk management management framework for risk risk identification, framework identification, Risk Risk priorities priorities for management management should priorities priorities for for the should set for each each year the present present year set and and communicate communicate risk year. . year the the board board and risk management management and executive executive 10/9/2024 33
RISK MANAGEMENT PROTOCOLS Risk Risk management management protocols protocols consist Tools Tools and and techniques techniques organizations management management tools, tools, for for example, data data mining mining tools tools and and common common techniques consist of of the organizations should example, computer computer software techniques. . the following following elements should have have appropriate software applications, elements: : appropriate risk applications, risk Risk Risk classification classification system risk risk classification classification system system organization organization should system based based on on the should establish establish common the nature nature and and severity severity of of risks common risks. . Risk Risk assessment assessment procedures common common risk risk assessment questionnaires, questionnaires, surveys, procedures organizations assessment procedures procedures such surveys, focus focus group, group, research, organizations should such as as interviews, research, etc etc. . should establish establish interviews, 10/9/2024 34
RISK MANAGEMENT PROTOCOLS Risk Risk control control rules rules and and procedures should should establish establish control control rules treatments treatments. . procedures risk rules and and procedures procedures for risk management management polices for carrying carrying out polices out risk risk Responding Responding to to incidents, to to- -do do- -list list of of activities incidents, issues activities to to perform issues and perform in in case and events events there case of of emergencies, emergencies, etc there should should be be clear clear etc. . Documentation Documentation and nature nature and and form electronic electronic or or manual and record record keeping form of of documents documents and manual. . keeping policy and records policy should should establish records to to be establish the be maintained, maintained, the 10/9/2024 35
RISK MANAGEMENT PROTOCOLS Training Training and and communication communication staff should should have have periodic periodic risk risk management management management tips tips and and massages staff staff within within the the organization organization on staff at at all all levels management training massages should should be on a a regular regular basis levels of of the training. . Important Important risk be communicated communicated to to all all basis. . the entity entity risk Audit Audit and system system should for for audit audit and and assurance assurance procedures should have have clear and assurance assurance should procedures and clear documented documented audit should be be established and protocols protocols risk audit trail established. . risk management management trail and and procedures procedures 10/9/2024 36
RISK MANAGEMENT PROTOCOLS Reporting, Reporting, disclosures disclosures and documented documented reporting reporting and certification certification at at the the entity entity and and certification certification an and disclosure disclosure policies and individual individual levels an entity entity should policies. . Risk Risk management levels is is important important. . should have management have 10/9/2024 37
RISK REGISTER A A risk risk register register is is a a tool risk risk. . tool for for capturing capturing risks risks and and actions actions to to manage manage each each The The register register is is regularly that that no no longer longer exist regularly updated exist. . updated to to add add new new risks risks and and remove remove risks risks The The risk continually continually monitor environments environments. . risk register register is is a a summary monitor risks summary of of the risks and and events the risk events in in the risk management management process the internal internal and process use and external external use to to 10/9/2024 38
RISK REGISTER Sample Compliance Risk Register Likelihood of Risk occurring Impact if Risk Occurs Risk ID Date Identified Risk Description Severity of Risk Risk Owner Risk Treatment Strategies 102 April 5, 2017 Incomplete tax returns from many start-ups High High Severe Taxpayer Services Conduct tax clinics 146 Aug. 27, 2018 Tax returns are not thoroughly analyzed by analysts Medium High High Human Resource Services Conduct data analytics training for analysts 76 July 20, 2018 Multiple TINs for taxpayers on the tax register Low Medium High Special Project Team Undertake data cleansing project 10/9/2024 39
CONCLUSION Revenue Revenue authorities which which provides provides reasonable achieved achieved. . There There must must be processes processes and and procedures Appropriate Appropriate tools, effective effective risk risk management A A risk risk register register captures objectives objectives and and treatment authorities must reasonable assurance must establish establish risk assurance that risk management management system that objectives objectives are system are being being be clear clear documented documented risk procedures. . tools, techniques techniques and management. . captures and and updates treatment strategies strategies. . risk management management policies, policies, and protocols protocols are are necessary necessary for for updates risks risks to to the the organization s organization s 10/9/2024 40
CASE STUDY A A revenue revenue authority management management compendium elements elements of of the the components Principles Principles Framework Framework Architecture Architecture Strategy Strategy Protocols Protocols In In a a group group of of five five persons, component component of of the authority has compendium. . The components of of the has set set up The team team needs the risk risk management management system up a a team needs to to identify team to to develop identify and develop a a risk and define system: : risk define persons, state the compendium compendium. . state and and define define two two elements elements of of each each 10/9/2024 41
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