What Is Risk Governance?

Mary McMahon
Mary McMahon

Risk governance is a form of active decision making where personnel make a conscious choice to adjust behavior to reduce exposure to risks. The more information a company has about potential risks, the more effective its risk governance will be. Personnel who specialize in this field can prepare reports and recommendations to guide administrators and other staff who must weigh risks in the process of coming to a decision.

Businesswoman talking on a mobile phone
Businesswoman talking on a mobile phone

Simple examples of risk governance can be seen at work on a daily level all over the world. People may avoid buying a home in a region prone to natural disasters, for example, to reduce their exposure to risks like earthquakes, floods, and fires. A company could choose to abandon a risky manufacturing process to limit financial liability, and develop a new process that works more efficiently and effectively.

In risk governance, it is necessary to have as much information as possible about hazards and their probabilities. This can include historical data as well as predictions for similar situations. A company in the tech sector, for example, might not have past equipment failures to draw upon when estimating risks with a new project, but it could look at similar companies to see how and when they experience failures. This information can help determine not only which risks are present, but how likely they are.

With this information in hand, it is possible to use risk governance to cut down on risks, although it is not possible to eliminate them entirely. Personnel may consider a number of factors, including the expense of risk avoidance, when making decisions. If it would be far too costly to limit a risk, the company might turn to measures like insuring to reduce financial losses in the event the predicted issue becomes a reality. Policies can cover natural hazards as well as business risks like technical failures and negligence on the part of staff.

Experts in this field study topics like statistics, risk analysis, and business practices. They need to be able to prepare relevant paperwork and information, drawing upon industry knowledge to determine which risks are most relevant. The work can also require the ability to clearly communicate risks, as experts may advise personnel who are not familiar with statistics topics. Executives presented with a bunch of graphs may not be able to understand them, for example, but if the risk adviser can speak in plain language about the topic, the executive will be able to grasp the situation.

Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a wiseGEEK researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

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