The effectiveness of risk management involves distinguishing between three interconnected levels. The first level is about relationships which must exist between the different structures composing the organization. The organization can be centralized or decentralized. This article discusses the levels of risk management.
Formally defining a company’s risk management level
What is important is to put in place an efficient organization that goes through the formal definition of responsibilities, powers, and procedures of execution and control without losing sight of the system of the delegation that must exist at all levels of responsibility. Every organization cannot ignore the environment in which it operates.
It is the internal environment that forms the basis of the entity’s organizational structure and dictates the manner in which goal-setting tasks will have to be carried out. The internal climate encompasses the entire managerial philosophy of corporate risk, risk appetite, the integrity, and ethical values of the organization’s leaders. Indeed, the culture of the entity can be influenced by the personality of the leader.
Ethics are important
To honor the results at all costs in defiance of the ethical rules is detrimental to an organization. The relationships established between the structure of the organization and the internal environment determine the setting their objectives. People wishing to contribute to an effective integrated risk management program will have to master not only the goals of their unit but also the general goals of the company. This is the third necessary relationship that must exist between the activity and the setting of the objectives of the organization.
These objectives should be defined considering the risk appetite of the organization. Processes are the second level of the framework of enterprise risk management. These are the processes of estimating, formalizing, and exploiting the risks that must necessarily be described. The third level of the framework of enterprise risk management concerns equities, that is, the control activities, the monitoring, information, and communication system.
If these three levels are established, the establishment of a risk management program is facilitated. Every company in the world needs to determine their level of risk management. David Johnson Cane Bay can take care of this for you.