10 Elements of Risk Culture in Business Organizations
Risk is inevitable, and the only way to deal with it, especially at the workplace is to have proper planning and tools in place to prevent risk. Risk management is a critical function in many large and small organizations across the globe. It is an essential step for businesses to remain profitable.
The difficulty is that companies have not been able to develop a risk culture where the entire organization, including every employee, thinks, behaves and takes actions to prevent risk. It is vital that organizations identify the uncertainties that can impact business operations and result in failure.
When an organization achieves this goal, the next steps are to plan and allocate resources to make sure the challenges are addressed proactively. One thing to remember is that risk management is not a one-size-fits-all strategy. Each organization has its unique set of challenges, which is why a specific risk management plan is needed for individual organizations.
Risk culture, similar to a corporate culture involves values, beliefs, knowledge and attitude towards shared risks across an organization. It is a company-wide initiative that will only work when all employees are engaged. Here are the essential elements of risk culture:
1. Top management support risk management strategies
For a risk management function to work, the senior management has to endorse it and ensure they set examples on how to tackle risks that can hamper business operations. Senior management should be committed and be able to distinguish the positive risks from the negative ones. Management should then support departments with addressing the high potential risks.
2. Work as a team to tackle risks
Teamwork is one of the key elements of risk culture. By working together as a team, it becomes much more manageable in identifying risks and combining the team strength to eliminate risks for a project, department and the entire organization. Teamwork will significantly contribute to the identification, minimization and elimination of risks.
3. Implement a proactive approach to identifying and preventing risks
Rather than being reactive and driven by events, a dedicated approach to risk management, assures organizations that small or even complexed risks will not influence them. Using a proactive approach is the key to active risk prevention.
4. Foster acceptance throughout the organization
Continuous risk management should be accepted throughout the organization by executives, management, departments, functions and everyone affected. Risk management is not a department or function on its own. These elements of risk culture are integrated with all functions of the organization, which is why organization-wide acceptance will surely help minimize and even eliminate risks.
5. Encourage risk reporting
A positive way of reporting risks can help in identifying all types of risks that can be missed by executives or top management. Organizations should implement mechanisms of identifying and proactively reporting risks, including learning from risks that have already occurred.
6. Reward risk prevention behaviors
A reward for risk prevention can be a strong motivator for eliminating potential risk. This approach changes the way risk is tackled and managed. It creates a promotion-oriented environment while preventing risks for the entire organization. Establishing goals around performance indicators related to risk management will influence the risk culture.
7. Keep employees engaged
Employee engagement has proven to improve productivity, reduce staff turnover and increase efficiency. It will work for risk management as well. Risk prevention will work effectively with the support and active engagement of employees within any organization. Every department or function within an organization works together and are entirely engaged in preventing risks related to their department, function or project. As a whole, they can avoid risks to the entire organization.
8. Align the risk culture with the corporate organization culture
As mentioned before, the elements of risk culture cannot be an isolated function as risk can affect all departments of an organization. It is vital that organizations align their planned risk culture with their corporate culture for risk management to work. The goal is to create a corporate culture that recognizes risks, prioritize each one and find ways to prevent them.
9. Develop a unique risk management plan
Risk management is not a one-size-fits-all strategy. Each organization is unique, with a set of different challenges. A plan for one organization may not work for all organizations. Each company should tailor models, processes and frameworks to suit their operations, which will help to take complete control of all risk situations that arise.
10. Develop a sustainable and repeatable program
An essential element is to develop a robust risk management program that is sustainable for long-term operations. The program should provide a value proposition. It should help to keep up with rapid changes, emerging risks and continuous improvement within the organization. The program should be efficient and not cumbersome. It should be easy to understand and align with the corporate culture. The organization should be able to monitor both the internal and external environment to identify risk challenges quickly.