Risk Management Standards For Best Practices

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The Standards for risk management have been established by the Institute of Risk Management (IRM), theNational Forum for Risk Management (ALARM) and the Association of Insurance and Risk Managers (AIRMIC). They have coordinated as a team to provide banks and other financial institutions with a standard to ensure best practices and discipline.

The standards set by these organizations are aimed at ensuring best practices in:

Standard for Terminology: The choice of words used in organizations involved in risk management must be ideal. The language used in documentation and business procedures must be clear and transparent. Professional and financial terminology must be used in the right manner.

Structure of the Organization: Risk management standards establish a standard structure for organizations with risk management as a best practice.

Standards for Risk Management Process: Organizations with risk management must follow standard procedures set by these organizations. This is meant to make the whole process efficient and productive at every department and level.

Defining Objectives: These standards have defined the objective for risk management to enable organizations to fix a target.

Therefore, by implementing the standards established, organizations will succeed in ensuring compliance. These risk management standards are in accordance with the requirements stipulated by the International Organization for Standardization (ISO). In its recent document the ISO/IEC Guide 73 Risk Management, there are best practices which have been fixed as standards.

According to the requirements of the ISO, risk management standards must ensure compliance with a standard framework. This standard framework comprises of the following processes:

  1. Establish a Context: There is need to define the objectives of the organization and purpose of best practices. Knowing the interests of the stakeholders and their importance to the organization is an important best practice as well. Therefore, there is need to define the key elements of the risk management process.
  2. Identify the Risk: Considering what can go wrong and how it can go wrong is an essential best practice. This helps in identifying the key factors which increase the risks in any organization. This helps in risk management.
  3. Analyze the Risk: There is the need for best practices which includes reviewing the controls which have been set. Analyzing the consequences of the risk and the level of impact it will have is also important.
  4. Evaluate the Risk: Determining the magnitude of the risk is another recommended best practice. This is because ranking the risks helps in ensuring compliance at every step. Those ranking as high risks must be treated as a priority.
  5. Treat the Risk: Identifying the options, selecting the best responses, developing risk treatment plans and implementing them are best practices to be followed.
  6. Monitor and Review the Standards: The standards for risk management need to be reviewed, because improvements will be required.

The standards for risk management have been established to be concise and effective in any financial setup. However, risk management standards vary in different organizations. Therefore, they will be needed to make necessary adjustments.

In this section we will discuss:

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