- A risk governance framework is a systematic approach designed to identify, assess, manage, and communicate about risks.
- A risk governance framework serves as a guide for navigating the complex world of risk associated with technological advancements, ensuring that risks are managed in a way that is transparent and inclusive.
In the realm of technology and science, where innovation often walks hand in hand with uncertainty, the concept of a Risk Governance Framework becomes paramount. A Risk Governance Framework is a systematic approach designed to identify, assess, manage, and communicate about risks, particularly those that are complex, uncertain, and ambiguous.
Understanding risk governance framework
A risk governance framework (RGF) is a systematic and operational tool designed to safeguard the stability and sustainability of an organisation or community by identifying, assessing and managing potential risks. The framework usually consists of multiple phases and steps to ensure comprehensive coverage of the various factors that may affect the achievement of objectives.
IRGC framework
The international risk governance council (IRGC) has developed a comprehensive framework that emphasizes an inclusive approach, involving multiple stakeholders in the governance process. This framework is not a one-size-fits-all solution but is adaptable and can be tailored to various risks and organizations. It is composed of several interlinked elements:
- Pre-assessment: This involves the identification and framing of risks, setting boundaries, and engaging relevant actors and stakeholders to capture diverse perspectives on the risk and potential strategies for addressing it.
- Appraisal: At this stage, the technical and perceived causes and consequences of the risk are assessed, developing a knowledge base for decision-making on whether or not to manage a risk.
- Characterisation and evaluation: This involves making a judgment about the risk and determining the need for its management, comparing the outcomes of risk appraisal with specific criteria set by decision-makers.
- Management: This is about deciding on and implementing risk management options, which may include avoiding, reducing, transferring, or retaining the risk.
- Cross-cutting aspects: These include communication, stakeholder engagement, and considering the context in which the risk is being managed.
The IRGC framework also underscores the importance of early warning systems and preparations for handling risks, as well as the significance of public trust in risk management processes. It acknowledges that many risks are intertwined with potential benefits, and the goal of risk governance is to enable societies to harness these opportunities while mitigating negative consequences.
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COSO’s Enterprise Risk Management
COSO‘s new ERM framework redefines risk management by emphasising its synergy with strategy and performance. The new framework adopts a five-factor plus principle structure that emphasises the relationship between risk and value, clarifies the positive and negative impacts of risk, and integrates risk management into strategy development and execution with the aim of creating, preserving and realising value for the business.
Implementation steps:
- Environmental assessment: the internal environment of the business needs to be assessed first, including elements such as the organisation’s tone, risk appetite and board regulation.
- Objective setting: Define the objectives of the business at a strategic level, and these objectives should be integrated with risk management to ensure consistency between risk management and business strategy.
- Risk identification: Identify the various risks affecting the business, including market, credit and operational risks, and assess their likelihood and impact.
- Risk assessment: Evaluate the identified risks and determine which ones need to be prioritised for management. This step requires consideration of the likelihood of the risk occurring and the potential impact.
- Risk response: Based on the results of the risk assessment, appropriate risk response strategies are developed. These strategies may include avoiding, mitigating, transferring or accepting the risk.
- Control activities: Implement the necessary control activities to reduce the risk to an acceptable level. These control activities may include policies, procedures and systems.
- Monitoring and improvement: Regularly monitor the effectiveness of the risk management process and make adjustments and improvements as appropriate. This step ensures that the risk management framework continues to operate effectively.
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A risk governance framework serves as a guide for navigating the complex world of risk associated with technological advancements, ensuring that risks are managed in a way that is transparent, inclusive, and considers the broader societal context. It is about making informed decisions that balance the potential for innovation with the need to protect against unforeseen consequences.
