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Blog > The importance of risk assessment and risk management

The importance of risk assessment and risk management

Devi Narayanan
August 23, 2022
3 minutes

Risk is often associated with note-worthy incidents or high-profile events, such as data breaches, natural disasters, health crises, or high-level corruption. However, the risk is not just the vulnerability to massive disruption, it is a product of uncertainty, and uncertainty is a constant. Uncertainty is not necessarily a bad thing, markets, and supply chains ebb and flows, regulations change and adapt to new conditions, and the industry evolves to maintain competitiveness. Along the way, many disruptions will arise. Risk assessment is the disciple of navigating that uncertainty, maintaining momentum through the small challenges, assessing the impact, and preparing to meet the difficult ones.

Risk assessment and  Risk management are critical for building a strong foundation for any organization. But it is no simple task. Organizations face an almost infinite number of potential risks. External risks associated with markets, economies, supply chains, and competitors provide a complex web for organizational leader to navigate and position themselves in. Leaders must often react to changing external circumstances, placing pressure on the organization to adapt. Internally, organizations must maintain compliance with regulations, manage the security of both physical and digital assets, and ensure the health, integrity, and morale of their workforce. 

What is risk assessment?

Risk assessment helps you depict the potential risks impacting your business. Any Risk assessment is based on the premise of 2 factors- i) the severity of the risk and ii) the likelihood of the risk occurring. Based on the probability and the severity, the risks can be categorized into High, Medium, and Low. As part of the risk management process, companies use risk assessments to help them identify and prioritize different risks and develop an appropriate mitigation strategy.

How to conduct Risk Assessments?

Risks come in various forms- (I) Operational (ii)Strategic (iii) Financial and (iv) External. The risk assessment process helps you identify these risks and classify them as High, medium or low based on the severity and probability of occurrence. Likely risks have a chance of occurrence of more than 70% whereas unlikely risks have a chance of occurrence of less than 10%. Depending on the business and its risk appetite, an insignificant risk may cause a negligible amount of damage — such as a loss of less than $1K — while high risks might create huge losses of $1M or more.

What is the first step in risk management?

The best way to reinforce risk management within an organization is, to begin with, a robust risk management plan. Having a plan in place to serve as a framework for the development of risk management capabilities, and to guide the organization when a disruption inevitably occurs, will put the organization in the best position to succeed. 

The first step is to do an honest and diligent evaluation of the current risk environment. What sorts of external risks is the organization exposed to? What risks are unique to the organization or industry? Finally, an honest assessment of what internal risks or vulnerabilities are present. Once the full picture of the risk environment has been put into place, make a fair judgment on the current capabilities and positioning the organization is in to respond to those risks. This last part is perhaps the most difficult, as it requires a great level of organizational self-awareness and criticism.

risk assessment stages

Once these evaluations have been completed the organization will be in a strong position to implement new policy and procedures, address vulnerabilities, and respond to new threats decisively. A solid foundation will provide tremendous value over time, as the organization is able to protect itself, its employees, and its assets from risks. A high fidelity of regulatory compliance will protect the organization from legal liabilities. An organization that demonstrates good custodianship of resources like customer data, materials, environment, and its employees, will increase its value proposition as a partner.

risk demo

All these benefits are compelling reasons to begin a new risk management regime. However, often the challenge comes later, when the difficulty in maintaining and growing such a complex and critical system becomes apparent.

Maintaining regulatory compliance is a complex and labor-intensive undertaking. Performing due diligence on third-party vendors, as well as auditing internal processes can easily devolve into a resource sink relative to the value it generates, as many teams struggle to keep up with paperwork to maintain compliance, let alone have the bandwidth to perform continuing analysis or implement new projects. Organizational policy is often the guiding framework that steers the organization in the right direction, but its implementation can quickly become disorganized, out of date, or unreliable. Risk management efforts are particularly vulnerable to becoming siloed, as individual teams or business units develop their own methods or procedures to handle risks known to them. This confuses the overall effort, isolates teams from a unified effort, and creates an opportunity for vulnerabilities to appear.

Additional Read: Why is risk mitigation important

New technologies seek to streamline the risk management process and allow teams to leverage the value it creates continually. Risk assessment software tools enable teams to automate audits, monitor risks in real time, perform due diligence on third party contracts, and analyze evolving threats. Removing the weight of manual paperwork and facilitating centralization of the resources helps teams to proactively evaluate and address potential risks and gives them room expand and grow their capabilities. Over time, the policy that once lead the way into a safer and more confident future can become a quagmire of revisions, conflicts, and inaccessible information. Tools to help streamline policy management can reduce noise for those seeking guidance from their leadership’s policy.

Creating accessibility increases the effectiveness of current policy by instilling confidence in those who go looking for it, as they can be sure of the information that they find. Additionally, it helps with adoption of new policy as its implementation is clearer, more concise, and it can be more easily referenced. Risk and uncertainty are realities that all organizations deal with, but the organization that takes those first steps in evaluating itself and defining a plan will create a sustainable advantage for itself, its partners, and community. Read more about business continuity risks .

Building a better way

Organizations need risk management and compliance automation with an agile technology and information architecture. The back-end management and oversight of risk is crucial to the overall continuity of the organization, and an effective risk assessment framework will engage employees and all relevant stakeholders to keep them connected and in tune with emerging risks.

Manual solutions aren’t equipped or efficient enough to keep pace with the growing number of emerging risks that each organization has to combat. Remember, risk should always be considered an ongoing process, and your tools should also embody that attribute. The ability to evolve and proactively adapt to an enjoyable user experience should be a functionality that the GRC tool offers. The VComply suite is equipped to address this need and does so seamlessly to successful compliance efforts. 

It is essential for organizations to develop an integrated, agile, and collaborative risk assessment, issue reporting, and case management program and framework that is found in VComply. VComply’s system of compliance architecture allows for issue reporting and case management to be integrated into other compliance, risk management and assessment activities coordinated across different departments and functions of the organization. This enables the organization to break down silos and make more informed business decisions.

See why VComply stands out as a G2 high performer in Compliance and Risk Management. Request your demo to see how it can drive your compliance initiatives.