What is risk management?

Summary

This video script explores the critical role of risk management in organizational governance, emphasizing its importance in strategic planning, decision-making, and achieving objectives. It highlights the necessity of balancing risk-taking with risk avoidance, and the iterative nature of managing risks through various tools and processes, ultimately aiming to foster a risk-aware culture within the organization.

Takeaways

• 😀 Risk is defined as the effect of uncertainty on objectives.
• 🏢 Risk management is a key component of an organization's governance framework.
• 💡 Managing risk helps in setting strategy, achieving objectives, and making informed decisions.
• 💰 Taking risks is fundamental to an organization's profitability and strategic delivery.
• 🚫 Avoidance of risk can be detrimental to an organization's future.
• 🔍 The board and management have a crucial role in overseeing risk management.
• 📝 The board should review and approve risk management policies and frameworks regularly.
• 🛠️ Management is responsible for developing and implementing the risk management framework and internal controls.
• 📈 A risk management framework should document risk tolerance and risk appetite.
• 🔎 Different types of risk include strategic, operational, emerging, people, and compliance risks.
• 🛑 Common tools for risk identification and management include risk management processes, policies, self-assessment, risk matrices, scenario planning, and loss event databases.

Q & A

What is the definition of risk?

Risk is defined as the effect of uncertainty on objectives.

Why is risk management important for an organization?

Risk management is crucial as it helps organizations set strategy, achieve objectives, and make informed decisions.

How does taking risks relate to an organization's profits and strategy?

Taking risks is fundamental to an organization making profits and a non-for-profit delivering on its strategy.

Why is risk avoidance potentially harmful to an organization?

Avoidance of risk poses a threat to the future of the organization, as doing nothing can be considered the greatest risk in a dynamic external environment.

What is the role of the board in risk management?

The board is responsible for overseeing risk management, reviewing and approving risk management policies and frameworks, and deciding on the nature and extent of risks the organization is prepared to take.

What is the responsibility of management in the context of risk management?

Management is responsible for developing and implementing the risk management framework and its internal controls.

What should a risk management framework document?

A risk management framework should document risk tolerance, risk appetite, and the levels of risk taking that are acceptable to achieve specific objectives.

What are the different types of risks mentioned in the script?

The script mentions strategic risk, operational risk, emerging and people risk, and compliance risk.

What tools are commonly used in the identification and management of risks?

Common tools include the risk management process, risk management policies and procedures, risk and control self-assessment, risk matrix, scenario planning, and loss event database.

How is the risk management process described in the script?

The risk management process is described as iterative, involving continuous monitoring, reviewing, and focusing on continuous improvement.

What is the vision of the Governance Institute as mentioned in the script?

The vision of the Governance Institute is to champion whole of organization governance and risk management through education, advocacy, and engagement with members and their broader community.

Outlines

00:00

🛡️ Risk Management Essentials

This paragraph introduces the concept of risk management as a critical component of an organization's governance framework. It emphasizes that risk is inherent in all business activities and is essential for achieving objectives, whether for profit or not. The script highlights the importance of taking risks for growth and innovation, while also noting that avoiding risks can be detrimental. The role of the board and management in overseeing risk management is discussed, including the need for regular review and approval of risk policies. The paragraph also outlines the components of a risk management framework, such as risk tolerance, risk appetite, and the types of risks (strategic, operational, emerging, people, and compliance risks). Tools for risk identification and management, like the risk management process, policies, procedures, self-assessment, risk matrices, scenario planning, and loss event databases, are mentioned. The iterative nature of the risk management process is stressed, highlighting the need for continuous monitoring and improvement. The paragraph concludes with a call to action to learn more about governance and risk management through the Governance Institute.

Keywords

💡Risk

Risk, in the context of the video, refers to the effect of uncertainty on objectives. It is a fundamental aspect of any organization's operations, influencing how they set strategy and make decisions. The script emphasizes that risk is inherent in all activities, such as making profits or delivering on strategies, and avoiding risk can be detrimental to an organization's future.

💡Risk Management

Risk management is described as a key component of an organization's governance framework. It involves the processes and strategies used by organizations to identify, assess, and control risk. The script highlights the importance of managing risk in achieving objectives and making informed decisions, suggesting that it is crucial for both profit and non-profit entities.

💡Governance Framework

The governance framework is the overall structure of rules, practices, and processes that ensure an organization is directed and controlled. In the script, risk management is positioned as a critical part of this framework, showing how it integrates with broader organizational governance to guide strategy and decision-making.

💡Strategy

Strategy in this context refers to the long-term plan of action designed to achieve an organization's goals. The script mentions that managing risk assists organizations in setting their strategy, indicating that understanding and mitigating potential risks is essential for strategic planning and execution.

💡Informed Decisions

Informed decisions are choices made based on a thorough understanding of the situation and potential consequences. The video script emphasizes that managing risk is crucial for making informed decisions, as it allows organizations to consider the potential impacts of uncertainty on their objectives.

💡Risk Tolerance

Risk tolerance is the degree of variability in investment returns that an investor is willing to withstand. The script explains that a risk management framework should document risk tolerance, defining the acceptable levels of risk that an organization is willing to take to achieve specific objectives.

💡Risk Appetite

Risk appetite is the level of risk an organization is willing to accept in pursuit of its objectives. The video script connects this concept to the organization's willingness to take on risk, highlighting that it is a critical factor in decision-making and strategic planning.

💡Risk Management Process

The risk management process is an iterative approach that involves monitoring, reviewing, and continuously improving how risks are identified, assessed, and controlled. The script describes this process as essential for developing a robust risk management framework within an organization.

💡Risk Culture

A risk culture is a workplace environment where staff feel empowered to ask questions and challenge assumptions about business practices. The script suggests that developing a risk culture is important for fostering an organization-wide approach to governance and risk management.

💡Risk Matrix

A risk matrix is a tool used in risk management to visually represent the likelihood and impact of potential risks. The script mentions this tool as part of the common practices in identifying and managing risks, helping organizations to prioritize and address different types of risks.

💡Scenario Planning

Scenario planning is a strategic planning method that some organizations use to make flexible long-term plans. It involves considering how different possible scenarios might affect an organization and its goals. The script includes scenario planning as one of the tools used in risk management, illustrating its role in preparing for various future uncertainties.

💡Loss Event Database

A loss event database is a system for recording and analyzing incidents that have resulted in financial or operational losses. The script mentions this as a tool used in risk management, suggesting that it helps organizations learn from past events to better manage future risks.

Highlights

Risk is the effect of uncertainty on objectives.

Risk management is a key component of an organization's governance framework.

Managing risk helps in setting strategy, achieving objectives, and making informed decisions.

Taking risks is fundamental to an organization's profitability and strategic delivery.

Avoidance of risk can pose a threat to the future of the organization.

Doing nothing is probably the greatest risk in a dynamic external environment.

The board and management are responsible for overseeing risk management.

The board should review and approve the risk management policies and framework regularly.

Management is responsible for developing and implementing the risk management framework and internal controls.

A risk management framework should document risk tolerance and risk appetite.

Risk appetite is the level of risk an organization is willing to assume.

Understanding risk scope is crucial for making decisions and avoiding certain types of risks.

There are different types of risk including strategic, operational, emerging, people, and compliance risk.

Common tools for risk identification and management include risk management processes, policies, procedures, self-assessment, risk matrix, scenario planning, and loss event databases.

The risk management process is iterative, focusing on continuous improvement.

Developing a risk culture involves creating a workplace where staff can challenge assumptions and ask questions.

The vision of the Governance Institute is to champion whole of organization governance and risk management through education, advocacy, and engagement.

Governance Institute aims to strengthen society through governance excellence.

Transcripts

what is risk management risk is the

effect of uncertainty on objectives risk

management is one of the key components

of an organization's overall governance

framework managing risk assists

organizations in setting strategy

achieving objectives and making informed

decisions taking risks is fundamental to

an organization making profits and a

non-for-profit delivering on its

strategy innovation is risk growth is

risk at avoidance of risk poses a threat

to the future of the organization so

doing nothing is probably the greatest

risk in a dynamic external environment

management needs to consider the risk of

not taking a risk or not making a

decision recognizing and managing risk

is a crucial part of the role of the

board and management oversight of risk

management is the responsibility of the

board they should review and approve the

risk management policies and framework

on a regular basis in this way the board

decides on the nature and extent of the

risks it is prepared to take in order to

meet its objectives management is

responsible for developing and

implementing the risk management

framework and its internal controls the

approach to risk will vary across

organizations but a risk management

framework should document risk tolerance

the levels of risk taking that are

acceptable in order to achieve a

specific objective will manage a

category of risk risk appetite the level

of risk the organization is willing to

assume ensuring that the board

management and staff all understand the

scope for risk when making decisions and

the type of risks that the organization

is attempting to avoid mitigate transfer

or accept there are different types of

risk strategic risk operational risk

emerging and people risk and compliance

risk common tools use in the

identification and management of risks

include the risk management process risk

management policies and procedures risk

and control self assessment risk matrix

scenario planning and loss event

database the risk management process is

iterative which means that it is a

process of monitoring reviewing and

focusing on continuous improvement

developing a risk culture means creating

a workplace where staff has the

confidence to ask questions and to

challenge assumptions about the way that

business is can

that our vision is to champion whole of

organization governance and risk

management through education advocacy

and engagement with members and their

broader community contact us to find out

more about governance Institute and the

benefits of membership governance

Institute strengthening society through

governance excellence