RISK & COMPLIANCE

Risk & Compliance framework

Risk & Compliance framework

Introduction

As we all know that business are run for profits with concept of perpetuity. Organization undertakes all those operations that lead return with a wish to find one with higher return. It is obvious that when business strive for higher return, it get exposed to higher risk and this relationship stands linear everywhere. Top management or business leadership wants to exploit all those options that lead to higher return but with less risk. There are certain attributes that are related to risk such as its intensity or magnitude level, frequency and most importantly probability of happening. Theorists and researchers have worked on it and develop a comprehensive plan which is known as risk management framework. It is not a generic book of principles or framework that can apply on every business but rather costumed made because nature of every business is different.

Organization develops risk management framework to find that what kind of risks are inherent in its business and what is the level of these risks. Risk management framework of any organization includes organization's approach to risk and identifying the risk it selves. Moreover, such framework also provides guidelines to institute a risk management culture inside the organization. By developing a risk management framework, no organization can totally wipe out the risk. It simply means that organization can develop a better understanding of risk and potential affect of risk on its business and identify ways to reduce the affect of these risks.

Discussion

There are many elements that describe an effective risk management framework. Few of these are discussed below:

Approach to Risk

Every business face risk as it is the essential element to run the business. Therefore, every business must have the capacity to face risk. Risk management framework prepares an organization to accept opportunities along with risk. The risk management framework provide information about risk tolerance and risk appetite meaning that what is the level of risk that organization can endure and to what level it can assume. There are certain factors that organization has to focus in term of risk appetite.

Risk appetite considerations

In order to prepare sound risk appetite policy, we have to consider the probability of happening and its impact on various facets of organization. It is an establish fact that the greater the probability of happening unwanted event, the higher the impact of it on various facets of organization such as loss in financial term, affect on reputation and market share of organization. It is kind of matrix that identify the loss on the basis of probability.

As organizations encounter different types of risks in doing business, therefore the risk management framework provides a clear picture that what should be the response for any particular risk which is as follow:

Risk as an inevitable cost

If organization finds an opportunity where magnitude and probability of happening unwanted event is low then organization should accept it and take it as inevitable cost of doing ...