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What Are Risk Management Best Practices?

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  • Written By: N. Kalu
  • Edited By: Allegra J. Lingo
  • Last Modified Date: 23 September 2014
  • Copyright Protected:
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    Conjecture Corporation
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Experts across different industries have come up with a number of risk management best practices used to identify, address, and assess risk. The goal of such practices is to reduce risk as much as possible. While techniques differ depending on the industry, risk management best practice guidelines are more or less followed across industries.

In order to manage risk, one must keep all communication channels open. This is key to encouraging all members of an organization to manage risk more effectively by sharing information. Furthermore, managers need to be able to clearly communicate with employees, coworkers, and executives to discuss risk and decide on the most appropriate course of action.

Among the risk management best practices is the practice of letting employees gather in committee. Working as a team allows for more diverse insight into the nature of a particular risk. It also pulls people from different divisions into working on a common problem.

For risk management to be effective, all employees need to understand the chosen risk management methodology. Being able to discuss risk in terms of this methodology is of the utmost importance. One should make sure that the language of the methodology used is clear and easy to learn. Training employees in the specific risk methodology will be increasingly crucial as risk management becomes part of the company culture.

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Establishing an executive position whose main function is to manage risk is another one of corporations' risk management best practices. Some businesses have a Chief Risk Officer to head the division that is primarily responsible for defining, addressing, and reducing uncertainty. One of the most critical jobs this executive can do is to formulate a way to measure risk within an organization. This can be done with the aid of various risk management software programs.

Promoting a strong culture of risk awareness is a best practice in any industry. Employees must have ownership over their work and must be willing to take responsibility for the consequence of their decisions. In this way, all employees become risk managers.

Risk management best practices also include incorporating the company's internal audit team into its risk analysis strategy. The audit team strives to make sure that the company is following all regulations. As such, they are already equipped with the knowledge necessary to identify risk to the company's internal processes.

Having a system of accountability in place is perhaps the most important risk management best practice. Most organizations present their risk analysis findings to shareholders, to the board of trustees, or to whomever governs the organization. The presentation should be simple and succinct, outlining several of the top risks to the company and how they are being managed.

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