Explained below is the process with risk management principles that must be followed.

Identifying

The first step is to recognize possible risks. Reasonably, every business faces risks; however, the kind of risks faced varies from business to business, which is why it is vital to take steps to unmistakably identify risks.

The identification process begins by identifying the source of the risk. Without finding the source, it is not possible to properly assess the risk and take actions necessary to remove or minimize it.

Assessing

Once identified, it is important to assess risks. This process includes preparing a risk chart that mentions all the risks the business faces with their probability of happening and the dangers they cause to the business, if triggered.

Assessing is a difficult process that is done keeping the business in mind. It is very important to assess every risk properly so that a strategy can be planned.

Develop a Plan

Once the risk charter is prepared, it is  time to develop a plan to take care of all the risks mentioned. However, since a business faces numerous risks, it is not viable for it to work on all the risks at the same time. It should first plan for risks that have the highest probability of happening and can cause the maximum damage. Once these risks are taken care of, one can move on to other risks.

It should also be remembered that the danger a risk possesses may change with time, which is why it is important to keep all these points in mind when developing a plan.

Implement the Plan

Once a plan is prepared, it is time to implement it. However, one should be very careful in implementing the plan making sure that everything is handled well. It should also be remembered that the implementation itself may take a good amount of time depending on the nature of the risk.

Reassess

Once the plan has been implemented, it is  time to reassess the results. It is very important to oversee everything to know if the risk has actually been taken care of or it still exists. Additionally, some new risks might have cropped up to look after now.

Risk Management Principles

To help you aid in this further, ISO has identified some risk management principles. They are:

• Create value
• Be continually re-assessed
• Be a part of organizational processes
• Explicitly addresses assumptions and uncertainty
• Be a part of decision making process
• Be based on the best obtainable information
• Be structured and systematic
• Be able to take the human factors into account
• Be interactive, dynamic, and responsive to change
• Be inclusive and transparent
• Be capable of constant enhancement and improvement

Calculating risks basically involves the application of a straight forward method. This method starts with the establishment of factors related to exposedness. Once the danger is known to the assessors or policy makers, actions are planned to counter these threats. Counter measures also depend on the size of the threat and the rate of threat occurrence.

After planning solutions for possible risks, their effectiveness is observed. If a solutions fits on particular threat then it’s regarded as a standard application and if not, changes are made. Of course changes are also subject to the ever updating laws and guidelines set forward by the British Standards Institute (BSI) and the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Risk assessment leads to the formation of better business with increased chances of profits and decreased chances of losses. Determining what part of a company or organization needs to be altered in order to avoid maximum casualties not only saves time but a good sum of expenses too.

Hospital bills and prolonged treatments can be avoided if an accident prone machine or equipment is kept away from workers. Buying new equipment costs much less than paying lifelong medical bills and lasting insurance payments.

The knowledge of impending losses and damages to the physical assets of a company or organization help the owners realize how much of their capital is actually invested or wasted. This helps in making swift monetary decisions in the future.

Definition of Risk Assessment

It is defined as an important process in business management, aimed at protecting the business and people related to it. Risk assessment is an important aspect of risk management.

Business managers and investors use risk assessment to measure the profit that will result from a particular investment. This helps in controlling financial losses to the business. In order to succeed with this, managers have to ensure compliance best practices with laws governing the business.

Importance of Risk Assessment

Risk assessment helps with implementing controls to ensure risk management. Once managers assess risk, they can foresee the negative impact of risk on assets and people related to the business. This allows them to implement necessary strategies (best practices) to mitigate and control risk.

Examples of Risk Assessment

When a lender receives a request from a creditor, there are certain protocols (best practices) that must be followed. The lender must make sure that the money lent returns on time. This means that the credit history of the person in question has to be assessed. This will tell the lender whether the applicant will return the money or not. Based on the assessment, the lender will then decide on how much interest to charge to ensure risk management. If the lender doesn’t think the creditor will pay off on time, he/she might as well decide not to give the loan at all.

Another example is risk assessment in a health care facility. Medical practitioners have to assess the risk associated with diseases. There are some diseases that are contagious and transmittable via aerosols. This means that people around the sufferer are at risk. To control this risk doctors must have a setup where people are safe and the spread of disease is controlled. This means medical practitioners have implement measures (best practices) to protect their employees and customers. This is compliance with risk management.

In simple terms, risk assessment means evaluating the extent of damage or threat imposed by failure to impose controls. Hazards must be identified to be able to decide on what measures will be appropriate.

How to Assess Risk?

Regardless of what form of business institution it is, there are five standard strategies that managers must use. These are:

1. Identify hazards/risks
2. Conclude where the impact of the hazard will be (e.g. employees, customers, assets)
3. Evaluate the impact of the risk and precautions or backups needed
4. Document the conclusion and implement control measures
5. Review the assessment based on the outcome and document updates if necessary

There are best practices to think about when risk assessment is being conducted. First of all, define the threat or hazard. This can be ANYTHING that harms the business, employees and customers. Secondly, understand that risk can never be eliminated, but mitigated and controlled.

The truth is that larger business enterprises are capable of absorbing consequences of exposure due to poor compliance with best practices. SMEs cannot withstand such exposures to risk, even minor theft, fraud or financial loss can destroy a small or medium business. Apart from this, another truth is that failure to ensure compliance with risk management increases chances running out of business.

The only way to manage a business is when you understand the basics of risk management. Risk must be defined to ensure compliance with best practices to avoid a negative impact on the business. The standard definition of risk is as an occurrence that leads to losses, most importantly monetary losses. It is important to understand that risk can be industry specific, and they vary. However, some common risks include:

• Operational Risk Management: Operational risk is associated with execution of business functions. Some typical examples of aspects where operational management come in include risk related to environment, fraud, and legal issues. In other words, operational risk means failed or inadequate internal processes and systems. Operational risk is a broader category under risk management. This is why operational risk management is treated as a separate aspect of business management.

• Credit Risk Management: When credit risk management fails, there are bad debts. It is a sign that the company’s capital reserves have been exhausted. Failed credit management leads to bad debts and lack of cash flow. Therefore, in order to succeed in business, SMEs must ensure compliance with credit risk management.

• Medical Risk Management: There is an ongoing debate on whether employees should be entitled to medical aid. Without medical cover, employees only get healthcare when they fall sick. This leads to longer time off from work. The consequences of this are faced by SMEs more than larger businesses.

• Reputation Risk Management: Making a good reputation takes years of hard work and dedication. Within five minutes of failed compliance and risk management a good reputation can be lost. The most common reason for loss of reputation is poor customer relations. Compliance with Consumer Protection Act is a major requirement for reputation risk management.

• IT Risk Management: Working without IT is impossible nowadays. Ensuring compliance with IT risk management is very important.

• Travel Risk Management: For those businesses where travelling is a requirement for employees, implementation of risk management is very important. Protecting your employees who travel against kidnapping, or other forms of assaults is a major requirement for businesses.

• Compliance Risk: When employees fail to comply with regulations of specific organizations, compliance risk threatens the success of the organization. Ensuring compliance with best practice is therefore a basic requirement in both large and small business enterprises.

Evaluating risk in your business requires an assessment of all these subcategories if risk management.

1.The Operational Security (OpSec): This is used to identify important information in order to determine whether a friendly approach can be used for preventing adverse effects. This best practice involves observation using an intelligence system to interpret the information to make it useful. Once the information is interpreted as useful, measures are taken to eliminate or minimize exploitation of the important information. This is an important risk management best practice. Operational Security has three variables:

i.      Visibility
ii.      Trust, and
iii.      Access

2.The Actual Security (ActSec): This best practice is simply described as the process of evaluating the actual risk associated with sensitive information. It can be existing risks of exploitation of the information. Calculating the ActSec is also an essential risk management best practice. There are five variables of Actual Security:

i.      Vulnerabilities
ii.      Weaknesses
iii.      Concerns
iv.      Exposures, and
v.      Anomalies

3.The Number of Loss Controls (LC): Risk management is all about implementing best practices using controls. There can be a number of controls managers implement in order to mitigate risks. Therefore, the number of loss controls is important in evaluating the Risk Assessment Values. There are ten variables of best practices associated with loss controls. These include:

i.            Authentication
ii.            Alarm
iii.            Confidentiality
iv.            Continuity
v.            Indemnification
vi.            Integrity
vii.            Privacy
viii.            Repudiation
ix.            Safety
x.            Usability

The Equation for RAV

The equation for calculating RAV requires a base number to be assigned to each category of best practices. The base number may represent the protected scope (LC_Base and OpSec_Base), or it may represent the extent of risk caused (ActSec_Base). Based on these evaluations, the following equation can be used to calculate the base numbers with best practices.

OpSec_Base =             100 – OpSec_Sum

(Scope + OpSec_Sum)

LC_Base =             Scope x LC_Sum x 0.1

Scope + OpSec_Sum

The LC_Sum must be multiplied by 0.1 in order to normalize the 10 categories into one single input. This is a very sensitive best practice for this calculation and must not be overlooked.

Calculating ActSec

Calculating ActSec is done based on those values that distinguish between a verified problem and an identified problem for best practices. An identified problem is one that has been confirmed through an interview, an assumption or vulnerability detection. Verified problems are those that have been confirmed through manual processes by auditors. To calculate ActSec_Sum best practice variables the following values are to be used for the Actual Security base input in the RAV equation.

Calculating the ActSec_Sum is done by calculating it as the average value of each input and then multiplying it by the corresponding value. This is not a very difficult best practice. The equation is as follows:

ActSec_Base =             ActSec_Sum

Scope

The RAV calculation corresponding to the above equation will then be:

Distinguishing between the base number and the sum number is a very important best practice. Therefore, during calculations taking special note of these values a very crucial best practice for effective risk management.

It helps identify processes, resources, and technologies that are designed to promote security best practice, good security planning and risk mitigation best practices within your organization.

1. Business Risk Profile

Understanding how the nature of your business affects risk is important in determining where to apply resources in order to help mitigate those risks.

Recognizing areas of business risk will help you to optimize allocation of your security budget.

2. Infrastructure

Perimeter defense addresses security at network borders, where your internal network connects to the outside world. This constitutes your first line of defense against intruders.

Rigorous authentication procedures & best practices for users, administrators, and remote users help prevent outsiders from gaining unauthorized access to the network through the use of local or remote attacks.

Management, monitoring, and proper logging are critical to maintaining and analyzing IT environments. These tools are even more important after an attack has occurred and incident analysis is required.

The security of  workstations is a critical factor in the defense of any environment, especially when remote access is allowed. Workstations should have safeguards in place to resist common attacks.

3. Applications

Deployment & Use

When business-critical applications are deployed in production, the security and availability of those applications and servers must be protected. Continued maintenance is essential to help ensure that security bugs are patched and that new vulnerabilities are not introduced into the environment.

Application Design that does not properly address security mechanisms such as authentication, authorization, and data validation can allow attackers to exploit security vulnerabilities and thereby gain access to sensitive information.

Data Storage &

Communications

Integrity and confidentiality of data is one of the greatest concerns for any business.

Data loss or theft can hurt an organization revenue as well as its reputation. It is important to understand how applications handle business critical data and howthat data is protected.

4. Operations

The security of an organization is dependent on the operational best practices in terms of procedures, processes and guidelines that are applied to the environment. They enhance the security of an organization by including more than just technology defenses. Accurate environment documentation and guidelines are critical to the operation team’s ability to support and maintain the security of the environment.

Corporate security policy refers to individual best practice policies and guidelines that exist to govern the secure and appropriate use of technology and processes within the organization. This area covers policies to address all types of security, such as user, system, and data.

Data backup and recovery is essential to maintaining business continuity in the event of a disaster or hardware/software failure. Lack of appropriate backup and recovery procedures could lead to significant loss of data and productivity.

Good Patch & Update Management is important in helping secure an organization’s IT environment. The timely application of patches and updates is necessary to help protect against known and exploitable vulnerabilities.

5. People

Security Requirements and Assessments should be understood by all decision-makers so that both their technical and their business decisions enhance security rather than conflict with it. Regular assessments by a third party can help a company review, evaluate, and identify areas for improvement.

Clear, “best practice”, practical Policies and Procedures for managing relationships with vendors and partners can help protect the company from exposure to risk. Procedures covering employee hiring and termination can help protect the company from unscrupulous or disgruntled employees.

Training and Awareness

Employees should be trained and made aware of how security applies to their daily job activities so that they do not inadvertently expose the company to greater risks

Risk management strategies must be implemented to ensure best practice by any financial institution. Social media websites can be very porous and can make businesses vulnerable. The main purpose of using social media websites is to advertise and attract maximum customers. There is a lot of communication through social media websites and therefore more exposure to risks. This is why financial institutions need to employ comprehensive social media strategies as best practice. These strategies must be suitable for the requirements of the business and at the same time ensure risk management.

Here are some risk management strategies financial institutions can implement while using social media websites:

Implement a Corporate Internet Use Policy

Financial institutions must be clear about whether the employees can use the internet for personal use on social media. If they can use it, then there must be clear outlined limitations which they must be informed about. There must be a written internet use policy which employees in financial institutions must sign. Additionally, employees must be aware that violating the limits set will attract disciplinary action. For example, employees must not indulge in defamatory, harassing, posting copyrighted content, confidential and proprietary information. Ensuring compliance with policies is an essential best practice.

CISOs Must Be Vigilant

The main reason for introducing regulators is management of reputation, proper operation and liability risk management. The compliance and information security officers (CISOs) must make sure employees have a copy of the corporate internet use policy. There must be clear information on what is classified as confidential information to ensure best practice. It must specifically include non public personal information, any associated financial and product information data. Employees must make use of disclaimers when they post approved advertisements and information with reference to the financial institution. This is a recommended best practice for businesses using social media.

Use Marketing and Communication Strategies with Customers

Financial institutions must keep a conscious awareness about the tendency towards becoming very informal on social media. Customer communication means relating with customers directly to promote products and services. However, there is a thin line which must be respected in order to maintain a good reputation online. At the same time, there must be risk management at every level. Marketing strategies which are professional and not spontaneous must be implemented as best practice. Additionally, there must be systematic controls and compliance reviews to ensure best practice. These must monitor use of emails and other marketing and communication channels.

Trademark Protection and Brand Management

Usually there is a risk of phishing and spoofing schemes which can perpetrate businesses through social media. Fraudsters can pretend to be established institutions and create false profiles to divert attention to their web pages. The main challenge is to have a large number of followers and fraudsters go to any lengths to achieve their target. Therefore financial institutions must implement aggressive brand management and trademark protection strategies as a best practice. They should employ every means possible to monitor and detect potentially harmful use of social media. For example use of the federal trade statute and ICANN’s uniform domain name dispute resolution policy is recommended.

Risk management requires best practices at every level. At the same time compliance must be enforced to ensure successful and risk free use of social media.

About Internal Control

To understand what the framework does, an overview on internal control is required. Internal control usually means different things to different people. However, the most common definition of internal control is: a best practice which establishes the needs of different parties and provides a standard against which businesses can estimate their control systems and plan their improvement.

In short, IC is designed to help business entities enhance their performance, increase their profitability and prevent the loss of resources. This best practice is also helpful in financial reporting, which is one of the important aspects in today’s business sphere.

The IC-Integrated Framework

Internal Control consists of five interrelated components which are derived from the best practices of management. Those five components are:

1. Control Environment – This module aims at setting the tone of an organization by motivating workers to become more control conscious. In essence, this is the main component of the IC-integrated framework since it provides discipline and structure.
2. Risk Assessment – Every entity in the business is bound to meet with external and internal risks, therefore they need to be assessed beforehand. Assessing risks helps in formulating plans to reduce their effects or even eliminate them altogether before they affect the organization and its processes.
3. Control Activities – This module contains the policies and procedures which help in ensuring that management directives are implemented. These activities are required because they help guarantee that the organization is heading towards achieving its objectives.
4. Information and Communication – Information that is vital for the company’s processes should be identified and communicated as quickly as possible to avoid any risks which can hinder production.
5. Monitoring – IC systems should be monitored in order to ensure that their performance is of high quality and consistency throughout. This module provides risk assessment professionals with guidance on this aspect.

Implementing the IC-Integrated Framework can help companies focus on their processes and reduce any risks they meet on the way. Therefore, investing in it will be a good decision.

Hazardous events x probability = Risk

In risk management, it is important to objectively define risk so that numerous individuals can work on it with the same data and can come up with more or less the same plans to avoid it from happening. This is where the process of risk assessment comes in. Through the process of risk assessment it is possible to analyze the potential losses that can occur as a result of accepting a risky situation. Risk assessment therefore takes into account the losses that can occur, the data regarding these risky situations, implementation of a proper strategy to counter it and finally producing strategic judgments and plans regarding the situation.

The following are the basic goals of risk assessment:

-          Identification of situations which are potentially hazardous

-          To implement measures of reckoning the likelihood of a particular hazardous situation occurring and also the uncertainty in the measures. In other words, the uncertainty or the loopholes in these measurements are also made a part of the process.

-          Provision of alternative measures to reduce or counter the risk.

-          Evaluate the potential of the provided measures to counter risk.

-          Put forward a proper strategic solution for the risk management decision to base on it.

How is Risk Estimated?

There are a couple of ways through which risk can be evaluated. The following are some of the most popular ways of estimating risk:

-          Through Modeling

-          Through analyzing the historical data

-          Through comparison with previous similar situations

-          Through classifying the different aspects of a system. Some categories for example can be events, faults, hazards, etc.

-          Through comparison with the most widely used methodologies

-          Through combining more than one of these ways together.

In this particular process, risk is defined as the basic product of a hazard and the probability of its occurrence. This means that probability of occurrence multiplied by the hazard is equal to ‘risk’. It should be remembered that in order to define the risk, it is important that the value of ‘probability’ and ‘hazard’ must be known.

Process of Risk Assessment:

The following are the four basic steps and without them the process of risk assessment is incomplete:

-          Identifying the hazard and its components.

-          Assessing the relationship between the adverse effects of a risk and the exposure to that risk.

-          Evaluating the exposure; taking into consideration the conditions which can lead to the risk.

-          The final step is to characterize the risk. In this step, the nature of the risk, its effects, the chances of occurrence of these effects and evaluating the strength of these effects. All these are usually found out using probability and other statistical data.

Risk assessment is carried out in order to make proper grounds for a decision. It is important to analyze the hazards or risks related to a change being made in the company or a new decision that has been taken. To reduce risk, it is important to carry out the risk assessment process. Also, with this process organizations become aware of the different adverse situations that can occur. Therefore, most of the established organizations base their decisions on the risk assessment reports to make sure they don’t end up in a hazardous situation.