ISO 31000 is defined as an international standard that offers guidelines and principles for effective risk management. ISO 31000 risk management was published in 2009 and outlines a generic approach towards risk management that can be applied in a wide range of scenarios, including different kinds of organizations and risks.
It extends a uniform concept and vocabulary for discussing and implementing risk management. Moreover, the principles and guidelines that can assist in undertaking a thorough review of the risk management process of an organization.
The standard does not offer any detailed instructions, state requirements on how to manage certain risks, or provide advice associated with a certain application domain; primarily, it remains generic.
What Are The Principles Of ISO 31000 Risk Management?
Following are the eleven principles laid out in The ISO 31000 risk management:
- Risk management builds and sustains values.
- Risk management is an important part of all processes related to the organization.
- Risk management is an aspect of decision-making.
- Risk management is structured, systematic, and timely.
- Risk management depends on the best information available at that time.
- Risk management is based on both cultural and human factors.
- Risk management is inclusive and transparent
- Risk management is iterative, dynamic, and responsive in order to bring change.
- Risk management allows continual improvement of the organization.
What Are The Components Of ISO 31000 Risk Management?
The ISO 31000 risk management has two prominent components that include:
The framework of the standard is the same as the PDCA cycle (Plan, Do Check, Act), which is universal to all management system designs. According to this standard, it is not aimed at prescribing a management system. Instead, it is there to help organizations to implement risk management into their management system. It encourages the organizations to take a flexible approach in implementing the framework when needed.
Prominent of the framework encompasses:
- Policy And Governance: It offers the mandate as well as reflects the commitment of your enterprise.
- Program Design: The framework’s design is focused on managing risks on a real-time basis.
- Implementation: It includes implementing the structure as well as the program of risk management.
- Monitoring And Review: This encompasses regular monitoring of the structure and performance of the management system.
- Continual Improvement: There need to be constant improvements to the performance of the management system.
Organizations, especially the ones without adequate management systems, will end up spending a substantial amount of time building a strong framework while resisting the urge to dive into the Process of risk assessment directly. The step of process design is an integral step as the framework offers stability and consistency to help build a program in comparison to merely completing a specific project.
Following are the elements that companies should consider:
- Building management commitment during the implementation as well as on a long-term basis, which include
- Establishment and verification of a formal policy.
- Identification as well as the allocation of required resources such as a budget and adequate expertise to sustain the program.
- Establishment of a standard review cycle in order to maintain the visibility of the program. This is done to motivate and manage all the participants.
- Developing a program that is suitable for the organization, its culture, and environment that include:
- Understanding the internal forces such as organizational structure, existing governance, culture, capabilities of the organization.
- Understanding the external forces like regulatory requirements, industry trends, and expectations of the stakeholders.
The extent to which a company recognizes and implements these elements depends on the purpose and needs of the organization. The primary goal is to establish a program, which is visible and well-equipped to be compatible with the objectives and culture of the organizations. Moreover, the program should also be sustainable for a long time period.
Another key element of the ISO 31000 risk management process. Once the framework of risk management has been established, the organization moves toward the step of Process. It is a multi-step as well as iterative, which is designed to determine and analyze the risks in terms of the organization.
Following are the key elements of the Process
- Risk Identification
This is the step where the team identifies the possible risks that can prevent the organization from achieving its objective.
- Risk Analysis
It includes understanding the sources and the reasons that resulted in the identified risks. Moreover, analysis encompasses studying probabilities as well as implications depending on the existing controls to determine the degree of residual risk.
- Risk Evaluation
In this step, the team compares the results of risk analysis with criteria in order to figure out whether or not the residual risk is tolerable.
- Risk Treatment
In this, the team alters the probabilities and degree of the negative as well as positive consequences in order to achieve an overall increase in benefit.
- Setting Up The Context
It is a new step in the process that aims at defining the scope of the risk management, stating the objectives of an organization, and establishing the criteria of risk evaluation. The context encompasses external as well as internal elements.
- Monitoring And Reviewing
This activity includes measuring the performance of risk management against the indicators. It centers on looking for deviations derived from the risk management plan, verifying whether or not the framework, plan, and policy are still effective, the external and internal context of the organization, risk reporting, progress of the risk management plan, and how efficiently the risk management policy is being followed, evaluating the effectiveness of the risk management framework.
- Communication And Consultation
It helps in understanding the interests and concerns of stakeholders. This is done to ensure that the process is focused on the right elements. Moreover, it also helps in explaining the rationale for the organization’s decisions and for specific risk treatment options.
What Are The Advantages Of ISO 31000 Risk Management?
ISO 31000 risk management is a great resource for both seasoned risk professionals or individuals who want to understand risk better. This is because it is concise and clear, providing a flexible manner to implement a risk management program. Here are the prominent advantages of ISO 31000 risk management –
ISO 3100 risk management structure is straightforward and easy to understand. There is a simple terminology definition featuring a distinctive ISO 31000 guide 73 reference document, which covers a set of risk vocabulary. Moreover, there is a principles section that defines the purpose as well as characteristics of risk management throughout the organization. It defines risk management as a tool for designing and protecting value, identifying the impact of cultural and human values, and the need for customization to align with the needs of the business.
It showcases risk management as an inclusive, integrated, dynamic, and structured discipline by leveraging the best available information and focusing on constant improvement. The section of the framework is connected to the decision-making and governance with commitment and leadership at its core. Additionally, it centers on designing, implementing, integrating, evaluating, and enhancing risk management across different verticals of the organization.
Facilitates Risk Engagement Across The Business
With ISO 3100 risk management, an organization can gain the support of risk engagement across the organization. According to the International Standards Organization, ISO 31000 risk management is a standard, which is applicable to every organization, irrespective of the size, type, activities, and location.
Moreover, the standard covers all types of risks that an organization is likely to incur as it was formed by different types of stakeholders and designed to be used by any individual who manages risks. Furthermore, it balances the risk mechanics or process steps with the business need of raising the risks with the level of objectives and strategy. ISO 31000 risk management is non-partisan in terms of risk techniques that are covered in ISO 31010 and IEC. Therefore, individuals who are not experienced can learn, and experts can debate the scope and challenges of various risk assessment methods.
ISO 31000 Risk Management Standard Is Easily Adaptable
The 31000 risk management standard is highly adaptable for the business. Contrary to other types of ISO standards, it offers guidance instead of merely being a certification platform. Considering that every business has various structures, objectives, and competitive stance, there cannot be one size fit approach towards managing the risks.
ISO 31000 provides a single standard that can be applied to all types of businesses, irrespective of type, sector, or location. Even though the standard is concise, it is not lightweight. The core value of this standard lies in being compatible with any type of business, program, project, and function.
When applying this standard, companies can conform to the overall requirements of the business in terms of risk management. Each organization has a unique risk profile, and the flexibility offered by ISO 31000 proves to be significantly helpful. This allows the standard to be applicable across the globe.
How To Implement ISO 3100 Risk Management In The Organization?
Following are the steps involved in the implementation of ISO 31000 risk management in an organization:
- Implementation Of Risk Management Plan
The first step of implementing any risk management strategy is to establish a risk management plan based on the existing needs and objectives of the organization. After formulating the plan, it should consider the external and internal context and other risk factors associated with the business operations. Furthermore, communication is an integral aspect of this process, and leaders should clearly define who, when, what, and how related to the communication plan for implementing risk management strategy. Here are the questions that leaders must address –
- Who should be aware of the strategy?
- When should they be informed?
- What do they need to know?
- When should they act?
- How will the plan be communicated to the concerned individual?
Once these questions have been addressed, the organization can begin to roll out its risk management strategy.
A Thorough Evaluation
After implementing a risk management strategy, it is critical to ensure that it is working effectively and the employees’ actions conform to the provided plans. The Process of evaluation can be performed in the form of surveys, interviews, quantitative report reviews derived from the risk management software.
This is a recurring stage that allows the organizations to acknowledge the gaps and reach them on a real-time basis, identify risk opportunities or alterations in the external factors that can influence the overall risk of an organization. Moreover, the process of evaluation is designed to make sure that the risk strategy continues to be ideal and the framework, which is being used, is still effective in terms of the company’s objective.
Improving The Risk Management Strategy
The business environment is highly dynamic; therefore, it needs continuous improvements. Performing regular implementation facilitates planning and implementation of changes into the core process in order to make it more efficient. Furthermore, reviewing the evaluation of risk management strategy will pinpoint the key areas where they need improvements.
And, acting on these improvements will allow the business to be in a stronger position and be in compliance with the constantly changing organization context. When a company recognizes the need for change during its evaluation process, then the leaders need to implement the required changes and assign accountabilities for the new additions in the risk management strategies. This will make sure that there is constant maturing, improvement, and advanced strategy towards risk management.
Organizations, irrespective of their core operational nature and industry, are vulnerable to high risk. As the operations of the businesses become more and more diverse, the risk factors continue to be manifolds. This is why it has become imperative for businesses to implement a strong risk management strategy.
And ISO 31000 risk management standard is a universal standard that allows organizations and individuals and understands risk management basics. Considering that it does not offer any guidelines or principles on a specific strategy, it can be implemented by any organization. This standard allows organizations to establish a risk management strategy with a strong foundation.