Risks are a part and parcel of every business. Therefore while planning for the future and looking forward to the next steps for the company, risk prediction should be a high priority.
Without risk foresight, many years of planning and revenues can be undone due to the failure of the business to plan. The equation is simple: if you are in business, consequently you are taking risks. Hence, it becomes vital to improve risk management by taking a variety of actions to ensure business stability.
In order to improve risk management, the first step one can take is to create a risk-intelligent workforce. This means that employees should be trained in such a manner that they are capable of thinking about the business and its consequent projects from a risk and opportunity perspective.
If from the start, all employees inducted develop a risk perspective towards their work, it will greatly improve risk management. On a higher level, this can be done by nominating some qualified members across departments for IRM’s (Institute of Risk Management) professional examinations in Enterprise Risk Management (ERM). This will help them in developing a more skewed risk management thought process, through which they can lead their teams towards more efficient goals while minimising potential risks.
It is also important to develop a risk culture to better manage the risks in a business.
This can be done by placing importance on a risk culture that promotes risk-based decision-making at the board level, risk committee level, as well as business level. Every project should first go through the lens of foreseeable risks and how to counter them, before starting work on them.
This kind of thinking not only helps improve risk foresight but also keeps the business prepared with countermeasures to mitigate risks that are more likely to occur. This approach will develop a strong sense of risk management in all employees and will make projects more efficient, and make the teams more confident about the results.
Usually, a chief risk officer is appointed to look into the business strategy and accordingly identify risks and look into opportunities for the business. However, more often than not, they don’t have adequate freedom to deep dive into understanding these risks, and thus, the job remains inefficient. To curb this, the chief risk officer should be empowered with more powers and authority to make informed decisions and help make the business more efficient by understanding the risks.
The more empowered the chief risk officer becomes, the more efficient risk management will become for the organisation.
Internal audits are kept on a pedestal when it comes to understanding the performance of a business, and the management of risk. This perception should be changed.
While an internal audit can only help in understanding risks at a surface level, it should not be taken as a benchmark to understand the analysis of risk the business has been facing so far. Internal audit and risk assessment should be kept as separate processes. One can look at carrying out a specific risk-based internal audit.
However, solely looking at internal audits will not give an in-depth analysis of the risks, hence leading towards inefficient risk management.
Risk management can be greatly improved in India if the above-mentioned activities are taken care of. By inculcating a risk-based perception in the employees, including having professionals who have passed IRM’s examination of ERM, risk management can be improved. A risk-based culture should be encouraged in the workplace to enhance risk management.
The chief risk officer should be empowered with more authority to efficiently assess risks and prepare measures to mitigate them. And lastly, by separating internal audits and risk analysis to efficiently assess risks and take steps towards the right direction will help improve risk management.
This article was written by Rohit Boda who is managing director at (re)insurance broker J.B. Boda and is based in Mumbai.
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