Risk Management – ISO 31000

Risk management is today one of the most important and worrying elements for organizations and companies. Generally, risks can be the driving force for strategic decisions, a cause of uncertainty in companies and organizations, or simply a consequence of business activities. However, it is an approach to managing risks at the enterprise level that requires the entity to consider the potential impacts of all types of risks on operations, activities, products, and services. The recent worldwide financial crises have highlighted the significance of proper risk management. Then, new risk management standards have been published, particularly the ISO 31000 Enterprise Risk Management System standard designed by the International Organization for Standardization (ISO). ISO 31000 provides a structured approach to implementing enterprise risk management.

ISO 31000 Enterprise Risk Management System was published in 2009 and is an internationally recognized standard for implementing risk management principles.

ISO 31000 Enterprise Risk Management System

ISO 31000 Enterprise Risk Management System helps companies develop a risk management strategy to identify risks and mitigate their impacts effectively. In this way, companies can achieve their goals and protect their assets.

The overall goal of the ISO 31000 system is to develop a risk management culture in which employees and stakeholders recognize the importance of monitoring and managing risks. Applying this standard helps organizations see the positive opportunities and negative outcomes related to different risks, with greater knowledge of resource allocation and more effective management decisions. Moreover, this standard is an active component in effective management and improving the performance of organizations.

Through the ISO 31000 risk management system, companies can identify potential risks in advance, calculate the losses that will occur to the company in the event of such risks, take the necessary precautions in advance to avoid risks, predict acceptable values ​​for preventable risks and predict what to do when risks occur.

Importance of ISO 31000 – Risk Management System

1. Give you a competitive advantage, because ISO is an internationally recognized standard; it increases customer confidence, which raises the competitive level locally and globally.
2. Increase employee awareness of risks.
3. Reduce and eliminate risks by educating employees and departments about the potential risks.
4. Increase investor confidence, by maintaining transparency and reporting risks, showing responsibility for risks, and trying to mitigate them.
5. Improve the company culture by bringing together different departments to exchange new perspectives, and consider how to work together more effectively.
6. Improve the success rate in all processes and decisions, by focusing on the process and thinking proactively rather than waiting to be reactive.
7. Prepare the business for all possibilities, by understanding the worst-case scenario, and to make the most of the resources and opportunities currently available to them.

ISO 31000 Enterprise Management System is a risk management process for implementing, supporting, and creating a successful structure for companies that wish to follow.

The risk management process requires the coordination of the following activities:

• Recognizing or identifying risks
• Categorizing or assessing risks
• Responding to significant risks (bearing, treating, transferring, or ending)
• Resource screening
• Reaction planning
• Monitoring and reporting on risk performance
• Reviewing risk management

Risks that organizations can face

• Reputational risks:

Organizations always seek to maintain their reputation and the confidence of customers or investors.

Example: The company’s reputation is exposed to corruption cases.

• Financial risks:

These are money risks, such as pricing, liquidity, and asset risks.

• Operational risks:

Possibility of unexpected disruption to the facility, such as a breakdown in the production equipment.

• Strategic risks:

Sudden market changes expose the facility to unknown and unsystematic risks, causing serious damage. These risks include, but are not limited to, rising costs of raw materials, or sudden technology changes.

ISO 31000 – Risk Management System Principles

Risk management exists to create, protect and achieve the organization’s objectives and improve its performance, by reviewing its management system and processes.

These principles describe the most important factors that can lead to the development of an effective and efficient risk management framework according to ISO 31000. This is reflected in the eight principles of the International Organization for Standardization (ISO), which are:

1. Risk management must be integrated into all processes and activities of the organization.
2. The risk management approach must be systematic and comprehensive.
3. The processes and risk management framework must be adapted to suit the organization and its employees’ objectives.
4. Top management must be involved in the risk management system; it must be comprehensive.
5. Risk management must be dynamic and iterative; to encourage preventive thinking, anticipate and detect sudden changes, and recognize and respond to changes.
6. Risk management is based on the best available information: it is important to consider and understand all available and relevant information about the activity.
7. Human and cultural factors are the workforce that are of the utmost importance in risk management and should be considered at all stages of risk management.
8. The risk management framework is constantly being improved through learning and experience. Organizations with maturity in risk management invest in risk management over the long term and demonstrate the natural achievement of their objectives.

The risk management system within your organization is based on the application of three main axes, which can be considered components of the risk management system:

1. ISO 31000 principles.
2. Establishing a risk management framework.
3. Risk Management Process according to ISO 31000.

Effectively implementing the risk management system

ISO 31000 does not specify a specific risk management process; rather, it is a set of guidelines that aim to help you understand or improve the risk management process in your organization.

1. Strong leadership: The reason for the success and continuity of the risk management system in the organization is that the leadership or top management is strong and decisive in its implementation.
2. Risk management should be proactive, so that the organization prepares for risks that have not yet arisen, rather than simply responding to risks that can be identified currently.
3. Continuous improvement: The most important requirement for any risk management system’s success is the process of constant improvement. Without emphasizing the principles of continuous improvement, this system will not continue.

There are three stages to building a culture of continuous improvement in your facility:

The first stage is building and enhancing cultural awareness about risk management among all employees in the facility. Do not expect employees within the facility to quickly conform to the goals you seek to achieve without being educated and trained on the new system.

This can be achieved in several ways, including:

• Defining the responsibilities of each individual, and conducting initiatives
• Launching training and educational programs for employees within the facilities,
• Providing support and guidance when needed.

The second stage is changing how the facility operates to match the new system of continuous improvement principles. This stage begins with restructuring the system by starting to encourage recognition of risks, rewarding employees for paying attention to risks and punishing behavior that is not in line with the company’s culture of continuous improvement, in addition to deploying and reassigning individuals within the facility according to the objectives of the risk management system.

The third stage is modifying and refining the system, and increasing cultural improvement by continuing the risk management process. At this stage, the focus is on monitoring system performance. During this stage, it is ensured that the risk management measures are modified to suit the period that the facility is currently going through. It also emphasizes that top decision-makers must bear responsibility for their decisions, in addition to constantly thinking about spreading the culture of risk management among the facility’s employees following the changing objectives of the facilities.

Guidance for Consulting and Training

Pioneers of management consulting, excellence, institutional development, and internationally accredited training according to the Saudi Standards and Quality Organization requirements, the Saudi Food and Drug Authority, and other accredited bodies that impose legal and mandatory requirements in the Saudi market.

To qualify your facility, train its personnel, and complete its required documents to implement quality and ISO systems