Risk management enables leaders to distinguish between and among alternative actions, assess capabilities, and prioritize activities and associated resources by understanding risk and its impact on their decisions.
Standard risk management principles are not designed to promote uniformity or conformity; rather, they offer broad guidance that should be uniquely tailored for the specific needs of each organization.
While a “one-size-fits-all” approach for risk management is neither feasible nor desirable, all risk management programs should be based on two key tenets:
1. Risk management should enhance an organization’s overall decision making process and maximize its ability to achieve its objectives.
2. Risk management should be used to shape and control risks, not to eliminate all risks.
The key principles for effective risk management include:
1. Unity of Effort: Risk management is an enterprise-wide process, and should promote integration and synchronization with entities that share responsibility for managing risks.
Risk management efforts should be coordinated and integrated among all partners, with shared or overlapping risk management responsibilities, to include Federal, state, local, tribal, and territorial governments, as well as the private sector, non-governmental organizations, and international partners.
2. Transparency: Effective risk management depends on open and direct communications.
Transparency is vitally important in risk management due to the extent to which the decisions involved affect a broad range of stakeholders.
Transparency is important for the analysis that contributes to the decision making. It includes the assumptions that supported that analysis, the uncertainty involved with it, and the communications that follow the decision. Risk management should not be a “black box” exercise where analysis is hidden.
Those impacted by a risk management approach should be able to validate the integrity of the approach. This principle does not countermand the times when there is need for security of sensitive or classified information; however, it does suggest that the processes and methodologies used for risk management may be shared even if the information is not. In turn, transparency will foster honest and realistic dialogue about opportunities and limitations.
3. Adaptability: The principle of adaptability includes designing risk management actions, strategies, and processes to remain dynamic and responsive to change.
The landscape is constantly evolving as priorities, threats, and circumstances change, requiring risk managers to adapt to meet expectations and requirements. Risk managers must be flexible in their approach to managing risk.
This means that solutions must be dynamic. A changing world, filled with adaptive adversaries, increased interdependencies, and new technologies, necessitates risk management measures that are equally adaptable.
4. Practicality: The principle of practicality pertains to the acknowledgement that risk management cannot eliminate all uncertainty nor is it reasonable to expect to identify all risks and their likelihood and consequences.
The limitations of managing risk arises from the dynamic nature of threats, vulnerabilities, and consequences, as well as the uncertainty that is generally associated with assessing risks.
This is especially true when facing a threat from an adaptive adversary, such as a terrorist or criminal organization. Decisions often are made amidst uncertainty, but that uncertainty does not preclude the need for sound analysis or well thought-out and structured decision making.
Risk management is an effective and important management practice that should lead to better-supported decisions and more effective programs and operations.
5. Customization: Risk management programs should be tailored to match the needs and culture of the organization, while being balanced with the specific decision environment they support.
Organizations and personnel should tailor the methods for the dissemination of risk information and decision making and communications processes to fit the needs of their mission.
The customization principle includes ensuring that the organization’s risk management approach is appropriately governed and uses the best available information.
This assures that the risk management effort is systematic, timely, and structured based on the values of the organization. However, the principle of customization does not supersede the need to adhere to organizational standards, requirements, and operating procedures for risk management when there is a requirement for working together to analyze risks and promote joint decision making.
Risk management is not an end in and of itself, but rather part of sound organizational practices that include planning, preparedness, program evaluation, process improvement, and budget priority development.
The value of a risk management approach or strategy to decision makers is not in the promotion of a particular course of action, but rather in the ability to distinguish between various choices within the larger context.
You may also visit:
1. What is Risk? https://www.risk-officer.com/What_is_Risk.htm
2. The Role of the Risk Officer: https://www.risk-officer.com/Role_Of_Risk_Officer.html
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