As a CFO office overseeing the strategic and financial aspects of over 50 companies, we have seen firsthand the importance of risk management. Companies, no matter their field, encounter a wide range of risks, including financial, operational, legal, and reputational. Without a strong risk management framework, we've witnessed several companies dealing with financial losses, reputation damage, and even bankruptcy.
That's why we firmly believe that businesses, irrespective of size and industry, should implement a risk management framework. It provides a systematic approach to risk management that helps businesses as follows:
Identify the risks: The first step of any risk management framework is to identify the potential risks that the businesses may face.
Assess the risks: After identifying the risks, they must be evaluated for their likelihood to occur and the potential impact on the business. This helps in addressing risks that require immediate attention.
Mitigate the risks: Following the risk assessment, it's important to devise risk mitigation strategies for each identified risk. This could involve implementing controls to reduce the likelihood or the impact of the risk, or transferring the risk to another party.
Monitor and report the risk: It is extremely important to constantly monitor and report the risks that could arise. This will help identify, assess and mitigate any new risks that may emerge.
There are several risk management frameworks that businesses may use. Some of the popular frameworks are COSO ERM Framework, ISO 31000 and RIMS Risk Maturity Model. However, the best framework for a business may depend on the size, complexity, industry and the specific risks that it may face.
When working with clients, we always encourage them to take a closer look at how they manage risks. We ask them whether they're doing enough to spot and handle risks. If they're not, we recommend creating a solid risk management plan as soon as possible as the success of their business might depend on it.