A risk assessment is what a company does when it assesses the potential for financial harm to the company or a physical risk to its employees or facilities. Assessing the risks that affect the organizational structure and knowing a company’s risk management strategy is a far-reaching investigation into the different ways in which a company’s operations may be exposed to risks from regulatory constraints, competition, employee problems, environmental conditions and social responsibility concerns. What is the risk management strategy and what is its role in the organizational structure?
What is the risk management strategy?
Risk management strategy is the process of identifying, evaluating, and controlling threats to an organization’s capital and profits. These threats or risks can stem from a variety of sources, including financial uncertainty, legal liabilities, strategic management errors, accidents, and natural disasters.
Organizational Structure
An organizational structure is the framework that binds all members of an organization together and defines lines of management within a corporation, nonprofit organization, or government agency. A well-defined organizational structure provides a clear path for risk assessment procedures. Before risk assessment teams start working, each team member should have a good working understanding of how the company is organized.
How is risk managed through the organizational structure?
The first step for risk management in designing an enterprise-wide risk management structure is to evaluate the organization’s current approach to risk management through the following questions:
Does the organization currently have an enterprise-wide risk management framework?
What are your mission and strategic goals for enterprise-wide risk management?
Are these objectives known throughout the organization?
Who is responsible for declaring, taking, controlling and evaluating each type of risk?
Who is responsible for developing risk-adjusted performance methodologies?
Are members organized with clear responsibilities?
The roles of the Head of Risk Management
The ERM organizational contact point is the Chief Risk Officer (CRO). However, defining the role of the Head of Risk Management is not easy. This job requires a combination of knowledge, experience and skill that is rarely found in a single individual. Most risk managers have a background in market risk, credit risk, or operational controls and for risk management by the Head of Risk Management to be effective, a CRO must possess the interpersonal skills necessary to coordinate risk management activities across the entire organization and to navigate the inevitable realities of corporate policy.
The roles and responsibilities of the Head of Risk Management vary according to the needs of the organization and the qualifications of the individual, including:
Instilling a consistent level of risk awareness throughout the organization and this is achieved through the development and implementation of a risk management process to identify and measure the full range of risks.
The CRO should be forward looking, focusing not only on current risks but also on future risks and generate discussion about acceptable risk levels and actions needed to mitigate risks.
The CRO prepares reports that include information regarding risks and emergency changes and presents them to senior management on a daily basis and inspires enough confidence to be carefully included in the company’s strategic decision-making processes.
Conclusion
Risk management relates to managing the company as a whole. Which contribute to enabling analysis that can be easily linked to current organizational levels and responsibilities in companies. The company’s decisions about authority, employee support, and reporting lines indicate the effectiveness of the CRM as well as enterprise risk management efforts. Such decisions are based on two main factors: the role of the Head of Risk Management and perhaps most importantly, the degree of trust in him in the various areas of responsibility.
