How to implement ISO31000 Risk Management Standard
Understanding, let alone managing risk, can often feel like hanging on by your fingertips. But it doesn't have to be that way.
By implementing a risk management system, such as the ISO31000 standard, organizations can improve their decision-making, reduce uncertainty, and increase the likelihood of achieving their objectives.
The reason ISO 31000 is so crucial is due to it being endorsed by over 160 nations. ISO 31000 is the international standard for risk management. It provides a framework and guidance for organizations to identify, assess, and manage risks.
The ISO 31000:2018 risk management standard provides guidelines for people who create and protect value in organizations by managing risks, making decisions, setting and achieving objectives, and improving performance. The standard includes the following elements:
Terms and definitions.
Risk management principles: The standard outlines principles that organizations should follow when managing risk, including being proactive, transparent, and inclusive.
Risk management framework: The standard provides a framework that encompasses integrating, designing, implementing, evaluating, and improving risk management across the organization.
Risk management process: The risk management process involves systematically applying policies, procedures, and practices to communicating and consulting, establishing the context, and assessing, treating, monitoring, reviewing, recording, and reporting risk.
Terms and definitions
The terms and definitions used in the ISO 31000:2018 standard provide a common language and understanding for organizations implementing a risk management process. The use of consistent and standardized terms and definitions can provide several benefits, including:
Improved communication and collaboration: By using a common language, organizations can more effectively communicate and collaborate with stakeholders, such as customers, regulators, and other organizations.
Enhanced understanding and awareness: Using standardized definitions can help organizations and individuals understand the risks they face and the actions they can take to manage them.
Reduced confusion and ambiguity: Consistent and standardized terms and definitions can help reduce confusion and ambiguity and prevent misunderstandings or misinterpretations of critical concepts.
Increased consistency and alignment: Using standardized terms and definitions can help ensure that the risk management process is consistent and aligned with the organization's goals and objectives.
Enhanced credibility and reputation: Organizations that use standardized terms and definitions can demonstrate their commitment to best practices and enhance their credibility and reputation with stakeholders.
The ISO 31000:2018 standard defines principles that organizations should follow when managing risk. These principles are designed to provide a foundation for the risk management process and ensure that it is effective, efficient, and consistent. The principles include:
Risk management should be an integral part of decision-making. It should be applied to all organizational activities, processes, and functions.
Risk management should be based on the best available information and consider the organization's goals and objectives, as well as the needs and expectations of its stakeholders.
Risk management should be transparent and inclusive, involving all relevant stakeholders in the risk management process.
Risk management should be proactive and aim to anticipate and prevent risks rather than simply reacting to them after they occur.
Risk management should be tailored to the organization and its specific context, considering its culture, capabilities, and resources.
Risk management should be dynamic, adaptable, and continuously improving and should be reviewed and updated as needed.
In the ISO 31000:2018 standard, the term "framework" refers to the structure and components of the risk management process. The framework provides a high-level overview of the risk management process, including the steps and activities involved, the roles and responsibilities of individuals and organizations, and the tools and techniques that can be used. The framework is designed to help organizations implement a consistent, effective, and efficient risk management process tailored to their specific needs and goals.
Implementing the ISO 31000 risk management process involves:
Establishing the risk management scope, context, and criteria.
Identifying, assessing, and evaluating risks.
Continually communicating, consulting, monitoring, reporting, reviewing, and updating the risk management processes.
By following these steps, organizations can improve their decision-making and increase the likelihood of achieving their objectives.
Scope, Context, and Criteria
The first step in implementing ISO 31000 is establishing the risk management scope, context, and criteria.
In the ISO 31000 standard, scope refers to the boundaries and parameters of the risk management process, including the risks that will be considered and the stakeholders involved.
Context refers to the external and internal factors affecting the organization and its risk management processes, such as its goals and objectives, the regulatory environment, culture, and capabilities.
Criteria refer to the standards, benchmarks, or thresholds used to evaluate the risks and determine the appropriate course of action. These criteria can be based on the organization's goals and objectives, industry standards, or other relevant factors.
Next, the organization should identify the risks that it faces. Various techniques can be utilized, including brainstorming, interviews, and workshops. The goal is to identify all potential risks that could impact the organization and their likelihood and potential impact.
Once the risks have been identified, the next step is to assess them. This involves analyzing the identified risks in more detail to determine their likelihood and potential impact. It also involves assessing the organization's ability to control or mitigate the risks and the possible consequences if they materialize.
Managers and risk advisers can use this information to prioritize the risks and focus management efforts on the most significant risks.
After assessing the risks, the organization can develop a management plan. This involves identifying the appropriate risk treatment options, such as avoiding the risk, transferring the risk to another party, or accepting the risk. The organization can then implement the chosen risk treatments and monitor their effectiveness.
Ongoing Risk Management Activities
Finally, continually reviewing and updating the organization's risk management processes is essential. This involves regularly reviewing the organization's risks and reassessing them as necessary.
It also consists of monitoring the risk treatments' effectiveness and making necessary adjustments. By continuously reviewing and updating its risk management processes, the organization can ensure that it is effectively managing the risks that it faces.
The Benefits of Risk Management
There are several benefits to implementing a risk management system, including the following:
Opportunity realization: By identifying and assessing risks, organizations can make more informed decisions about allocating resources and planning for the future.
Enhanced efficiency and effectiveness: Risk management can help organizations avoid or minimize the impact of potential adverse events, which can save time, money, and other resources.
Increased accountability and transparency: A formal risk management process can help organizations be more accountable and transparent by documenting the risks they face and their actions to manage them.
Better compliance: Adhering to risk management standards, such as ISO 31000, can help organizations meet regulatory requirements and avoid penalties.
Enhanced reputation and credibility: Organizations that effectively manage risk can improve their reputation and credibility with stakeholders, such as customers, investors, and regulators.
Every free plan also comes with a free PDF version of my aide-mémoire. The book contains almost 200 pages summarizing every risk management tool, concept, and model you could need for risk management.
We also took care when designing SECTARA to ensure that it is fully aligned with the ISO31000 process.