After the global collapse of 2008, a need to proactively manage the inherent risk in the businesses was observed. Globally, the reporting standards and governing legislation are also changing. Risk management has been recognized as an important business function for tackling uncertainties in businesses. Uncertainty is a risk only when it affects the objectives of the organization.
The resultant disparity between the vision and tactical execution happens when the objectives are poorly defined, and also when the identification and management of those risks are not proactive enough. Since the idea of zero risks is not favorable given the relationship between risk and returns, successful firms need to focus on acknowledging the relationship and thereby managing it.
Risk Control Self Assessment
One way to identify the risks and design a corrective action is through self-assessment. This way, every level of management will be involved in identifying the risk exposure, and the management can draft the controls based on the risk appetite of the organization. The simple way is to ask every level of management about the risks involved in decision making. The controls drafted need to withstand the test of uncertainty. As these risks are classified on the basis of likelihood and impact.
The obvious appetite for exposure determines the extent of controls. Self-assessment helps in ensuring that the controls are working as desired and the management gets feedback on the overall quality of the processes and the mitigated risk functions.
Integrated Risk Management Framework
The matrix focuses on control assertions that define the risk and thereby help the management in devising an optimal strategy for those risks. The focus is on the tactical aspects concerning the exposure suffered by the businesses and projects. The strategic element to avoiding risk, or developing a risk appetite for the risk, takes a second stand. As the focus is on developing controls for possible risks that the business might be exposed to.
In other cases, the businesses might be exposed to risks with a positive impact on the business scenario affecting the business favorably. With the changing regulations, businesses are starting to account for both of them to maximize the benefits. Integrated risk management frameworks offer a bird’s eye view of the operations of the organization which offer better benefits compared to limited-scope risk redressal. Any controls that tackle these issues head-on are key controls.
An effective RCSA will identify the missing control or those controls that are not sufficient. It helps in removing poorly defined controls by replacing them to address the problem. An effective self-assessment will form the first line of defense, with third parties only needing to act on the organization’s personal assessment of the issue. Therefore, RCSA is key to identifying the parameters that are the most critical in the framework.