Risk Management Strategies and Techniques

Businesses of all sizes and scopes will stand or fall depending on how they manage the many risks inherent in a commercial enterprise. Some risks, such as competition, have always been present, but today the landscape is ever evolving, and new risks regularly appear. Cybersecurity, pandemics, more regulations, and evolving customer and stakeholder demands around an organization’s Environmental, Social and Governance (ESG) objectives have added to the risks that businesses must manage.

In order to ensure competitiveness and business continuity, organizations need to know their risks, manage and mitigate them to prevent negative consequences, and be able to turn risks into opportunities. Applying mitigation strategies for risk management and proven risk management techniques allows organizations to handle risks proactively and strategically. It is recommended to implement a management system compliant with relevant ISO or other recognized standards.

What is a risk management strategy?

Businesses have many types of risks to address. Some impacts are internal, such as the health and safety of employees and business resilience, while others are more externally oriented, like the risk of contaminated food products causing illness or death for consumers. Regulatory breaches may lead to fines or sanctions if risks are not properly managed.

At its core, a risk management strategy is a structured approach to dealing with uncertainty. It involves identifying potential risks that could impact an organization, assessing their likelihood and potential consequences and then taking steps to mitigate the risks along with monitoring and review, and recording and reporting. This strategy is integral to an organization's governance and management processes, as it is designed to minimize the negative impacts of risks on business objectives while maximizing the opportunities that come with them.

Different organizations will use different risk identification techniques. Organizations often use a combination of methods of managing risk to ensure that no critical threat is overlooked. Some will focus on managing risks in a silo fashion with risk managers dealing with specific areas or departments of an organization, whereas others may take a more holistic approach and look at risks on a wider basis. Some will take a reactive approach while others will be more proactive.

A proactive approach is recommended. More and more businesses chose to implement a management system compliant with a best-practice standard such as the ISO standards on quality, occupational health and safety, environmental management or energy efficiency. This is a proactive, comprehensive approach that requires investment and commitment. With it risk management takes on increasing importance and enables companies to address risk in a structured fashion.

Why is having a risk management strategy important?

A risk management strategy is more than a compliance necessity and should be seen as a strategic asset. It enables an organization to deal proactively with potential threats and to seize opportunities that may come when risks are managed properly. By implementing structured risk management strategies and risk handling strategies, organizations can systematically identify, assess, and mitigate risks, leading to better decision-making, strengthened processes and enhanced business resilience.

Societal and regulatory focus on matters such as environment, climate change, energy efficiency and information security has led to stakeholders and customers taking a greater interest in the affairs of the organizations they partner with or support. Businesses that recognize this and that wish to demonstrate their commitment can best do so by achieving certification to the selected appropriate management system standards.

For organizations that choose to implement a management system based on ISO or other recognized standards, risk management will be an integral element as it is usually a requirement of the respective standards. Companies seeking certifications are also subject to regular audits by a third-party like DNV, making regular monitoring and continual improvement a central foundation in their risk management strategy. Organizations can also explore risk-based certification or enhance their skills through risk assessment courses to ensure effective implementation of risk management practices.

Risk management based on the individual ISO standards, for example, can be reinforced by implementing the ISO 31000 risk management standard. This is a guideline standard that is not certifiable, but it does provide guidance for internal or external audit programs. Organizations can compare their risk management practices with an internationally recognized benchmark, providing sound principles for effective management and corporate governance. It can be used by any organization regardless of its size, activity or sector.

Risk management strategies are not just about managing threats but about creating an environment where risks are understood, managed, and even leveraged for the benefit of the organization. They are an essential component of a robust business strategy, ensuring that an organization can navigate the uncertainties of the business world with confidence and agility.

Essential methods for identifying and managing risks

Developing a risk management strategy requires an organization to fully understand what risks are, their impact on the business, how they evolve and change and, not least, how they can be mitigated or even taken advantage of. Some of the most important factors to consider are:

• Risk Identification: The first step in any risk management process is to identify the risks. This involves a thorough analysis of the internal and external environment of the organization to pinpoint potential threats. It is about asking, "What could go wrong?" and "How can it affect us?". Particular attention needs to be given to impending legislation and regulation, geopolitical events and societal trends.
• Risk Analysis: Once risks are identified, they are subjected to a detailed analysis to understand their nature, including the likelihood of occurrence and potential impact. This step is crucial as it helps in prioritizing the risks based on their severity.
• Risk Evaluation: Risk evaluation compares the analysed risks against the organization's risk appetite and tolerance levels. It answers the question, "Which risks can we afford to take, and which do we need to address immediately?"
• Risk Treatment:  Based on the evaluation, strategies are developed to treat the risks. These could include risk avoidance, reduction, transfer, or acceptance. The choice of strategy depends on the risk's nature and the organization's capacity to handle it.
• Risk Monitoring and Review:  Risks are not static; they evolve as the business and its environment change. Continuous monitoring and periodic review of risks and the effectiveness of the risk management strategies are essential to stay ahead of potential threats. Organizations implementing standardized management systems will find that the requirement for regular audits and continual improvement action will be of great help in this respect.
• Risk Communication: An often-overlooked aspect of risk management is communication. It's vital to communicate the risks and the measures taken to manage them to all stakeholders involved, ensuring a common understanding and coordinated approach. Communication with internal staff is essential to developing a business risk culture within the organization.

ISO 31000 provides direction on how companies can integrate risk and strategic management into an organization’s governance, planning, management, reporting, policies, values and culture. Learn more through DNV’s risk management foundation course.