3 Steps to Developing an Effective Risk Management Strategy
It is important to the success of your institution to have a robust risk management strategy that allows you to better manage changing regulatory demands and the introduction of new products and services. Here is a breakdown of the important components necessary to build an effective risk management strategy plan in your institution.
Define Your Risk Appetite
Your risk appetite is the amount and type of risk your institution is willing to take in order to successfully complete their strategic objectives. Therefore, understanding your risk appetite has a crucial impact on how your institution can safely grow and change. Define your risk appetite by considering the skills and resources necessary to manage risks throughout your institution. Identify Key Risk Indicators (KRIs) that need to be monitored as part of this management. Your risk appetite should be reviewed regularly to take into account changing industry conditions, as well as internal changes to your institution.
Communicate Risk Effectively
Learning how to engage your board is key to strong risk management. With so much information to report on, sometimes crucial points can be overshadowed by less pressing data. One helpful tool in managing these conversations is maintaining the agenda. The meeting agenda can be a powerful tool a risk manager can use to ensure areas with the highest importance are acknowledged and communicated, fostering risk management buy-in from your board.
Build a Proactive Risk Culture
This comes as no surprise, but the regulatory environment is always changing. The constant tide of regulatory requirements and demands necessitates an Enterprise Risk Management (ERM) program that is responsive to these regular changes. This is also true of emerging risks. It is important that your institution have an ERM program in place that is flexible enough to mitigate emerging risks before they have the opportunity to seriously threaten your organization.
To develop a successful strategy for risk management, there must be a holistic effort throughout the organization focused on identifying risks and implementing the best risk-mitigating practices possible. Complete understanding, effective communication, and an agile ERM program work together to create this holistic approach.