The ISO 31000 standard, Risk Management: Guidelines, provides principles, a framework and a process for managing risk. It can be used by any organization regardless of size, activity or sector. There are at least five crucial components that must be considered when creating a risk management framework. They include risk identification; risk measurement and assessment; risk mitigation; risk reporting and monitoring; and risk governance.
In a world of uncertainty, ISO 31000 is tailor-made for any organization seeking clear guidance on risk management. Risk management explicitly takes into account the limitations and uncertainties associated with such information and expectations. Risk reports should be sent to risk personnel who have the authority to adjust (or instruct others to adjust) risk exposures. The ISO 31000 framework provides the tools needed to fully incorporate risk management into governance and decision-making functions.
In the end, all of these factors and your risk management framework must be directly related to the company's objectives. The importance of leadership for the success of the ISO 31000 risk management system is worth repeating. This involves developing an appropriate plan, identifying how different types of decisions are made and who makes them, and ensuring that these risk management arrangements are clearly understood and implemented. For example, market risk can be measured using observed market prices, but measuring operational risk is considered both an art and a science.
Perhaps second only to leadership and commitment, integration is very important in any risk management framework. Quality management (ISO 900), environmental management (ISO 1400), risk management (ISO 31000); these are all examples of ISO standards that share a common structure of management systems standards (MSS). Despite the fact that there is a step within the framework of the ISO 31000 standard dedicated to this and that the framework is presented as a series of consecutive steps, the most effective risk management systems adopt a truly continuous improvement approach. Human behavior and culture significantly influence all aspects of risk management at every level and stage.
After listing all possible risks, the company can select the risks to which it is exposed and classify them into main and secondary risks. An effective risk management framework seeks to protect an organization's capital base and profits without hindering growth. Having a robust risk management framework can help organizations identify and prepare for the different threats and dangers they might face. The basic idea is that risk management should be preventive, since it prepares for risks that have not yet arisen, rather than simply reacting to risks that can currently be identified.