Archive for February, 2013

An Effective Risk Identification Approach

Linked in groups feature many interesting discussions on risk management practices. In the Enterprise Risk Management (ERM) group on Linked in, I came across an interesting question posed by a member.

“In terms of operational risk in the financial environment, what would be the best approach to follow to “teach” someone how to identify risks in their environment? Thinking about an effective risk identification approach, instead of the “top-of-mind” approach to identifying “top 10″ risks.”

There were a couple of other interesting responses, but my own view is that “top of the mind” risks are not necessarily a bad place to start. An effective risk identification approach would include the following steps:

1. Start with the “Top of Mind Risks”

Top of the mind items are usually there – occupying center stage in people’s minds because they are usually the most critical issues facing the industry, the organization or the function.

2. Develop a more comprehensive risk universe

Obviously  its not enough to stop at just those top of the mind items – we should supplement this with other items  both from within the organization combined with external factors. Sources of this risk information could be  – current issues facing the business or the industry, past trends, known loss events, emerging risk scenarios, potential black swans etc. So a more comprehensive universe of potential risks would be the result of this exercise.

3.  Identify the critical risks facing the business

Its also crucial to get organization wide views into which of these risks are most critical to your business, and have the highest potential impact and probability of occurrence. Consolidating the views of the C suite and the business functions can help create a shared view of the risks facing the organization and develop appropriate response strategies.

February 10, 2013 at 7:34 pm Leave a comment

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