Risk management is the process of identifying, evaluating, and controlling risks to an organization’s operations and financial performance. These dangers can be caused by several things, such as economic unpredictability, legal responsibilities, technological problems, strategic management blunders, accidents, and natural calamities.

An effective risk management program helps a business navigate all potential hazards. Managing risk also examines the link between risks and the possible adverse consequences to an organization’s strategic objectives.

Even without a formal enterprise risk management (ERM) program, risk management is something that most businesses undertake; it simply comes down to considering risk while making decisions. The company’s goals, objectives, and strategy are considered when all enterprise risks are identified and ranked in order of importance based on the organization’s risk appetite.

Besides focusing on recognized dangers, it’s also essential to anticipate hazards and take proactive steps to reduce them. This article discusses how business analytics and metrics can help predict risk.

How Does Risk Management Relate to Performance Management?

Organizations must look beyond financial risks to identify, assess, evaluate, and manage the non-financial dangers that have the potential to affect the organization’s ability to execute strategy and deliver performance effectively.

One way to do this is by leveraging performance management process tools and business analytics, to give senior executives the data they need to prioritize risk and allocate resources. Evaluation tools can set thresholds for key performance indicators (KPIs) that will provide early warnings for business performance concerns and, thereby, risk.

Predictive analytics can also help measure and monitor risks. Risk-adjusted forecasts are critical for a well-informed supply chain and improving decision-making. Metrics that indicate the consistency of business processes and effectiveness of internal controls can serve as early warning key risk indicators (KRIs).

Integrating risk with performance management is critical. With effective metrics and reporting, organizations can identify potential risks faster, prepare for them better, and respond to them more quickly. Better monitoring and reporting also arise from integrating risk with performance management.

To achieve all this, organizations must:

  • Incorporate risk into KPIs to identify potential problems
  • Develop, implement and incorporate new KPIs for risk into the performance and risk dashboard
  • Perform trend analysis to identify process deficiencies or other trends before they reach critical levels
  • Monitor key risk indicators (KRIs) to help gauge the effectiveness of mitigation strategies to reduce the likelihood or impact of a given risk

Because of increased volatility, uncertainty, and globalization, organizations must use technology and approach risk management actively, instead of taking the back seat and only reacting to risks after they strike.

How Do You Measure Risk Management Performance?

Key performance indicators (KPIs) and key risk indicators (KRIs) are the two types of metrics you can use here. Both are essential, quantifiable methodologies for determining the level of risk exposure inside a company.

Generally, KRIs assess and measure the effectiveness of the risk management process. On the other hand, KPIs evaluate the factors considered essential for performance measurement and show how regularly the corporation meets critical performance goals. You can show how far the firm is from a specific business security goal or objective by combining KRIs and KPIs over a long period.

An enterprise risk management program should pinpoint company weaknesses and provide approaches and processes for measuring the program’s worth. There are four essential risk management metrics:

Number of Systemic Hazards Found

Identifying systemic risks involves finding relationships among all organizational levels and functional domains. Additionally, this metric will point out parts of the business (a geographic unit, an operating unit, a department) that might profit from centralized controls, which improve administrative efficiency by removing the extra effort and expense of maintaining specific activity level restrictions.

Proportion of Process Areas Subject to Risk Assessments

A risk “belongs” to the process owners (that is, the people responsible for a certain business process, such as onboarding new vendors or managing intellectual property), while the accuracy, completeness, and timeliness of the risk information belong to the risk managers. Risk assessments are more likely to yield accurate, forward-looking data as more process owners participate.

Percentage of Significant Hazards Observed

Organizations must have a solid grip on how risk relates to daily business processes. Conducting risk assessments is a starting point to connect hazards to specific activities and prioritize activities requiring the most monitoring. Performance targets and thresholds are set based on the level of risk for each hazard. When metrics exceed a threshold, corrective action must be taken.

Remember: Transparency Is Essential

Transparency into your risks helps executives to understand which ones are most pressing and which ones aren’t. That insight, in turn, helps management to send resources where they’re most needed, and to stop squandering resources on low-impact threats.

Business Analytics Can Help You Improve Risk Performance Management

When new data is produced, it is first kept in a large repository called a data lake. Sadly, corporations have vast amounts of data that they cannot comprehend or use. They are, in essence, drowning in the data lakes they create. We’ve outlined eight crucial ways data analytics may help firms achieve better results.

Improve Staff Productivity and Engagement

Managers can use sophisticated human resources (HR) platforms made possible by big data to boost productivity and employee retention. A human resources management system (HRMS) can interact with corporate data to improve people management, recruitment, training, and wage administration, as well as employee performance and engagement.

Tracking Information to Improve Cybersecurity

Toda”s company executives prioritize risk management and compliance, in no small part because the COVID-19 pandemic drove an increase in fraud, social engineering attacks, and other security threats. Data scientists create analytical models to anticipate security and compliance risks, evaluate their effects, and weigh the investment needed to control those risks against their potential financial and strategic damage.

That said, more data also increases the risk of privacy breaches, or other compliance violations for using data in inappropriate ways. (Say, inadvertent discrimination against certain groups.) As a result, an organization must integrate risk management analytical systems into security protocols to safeguard its resources, clients, and reputation.

Improve Client Experiences and Monitor Consumer Behavior

Tracking consumer behavior to enhance user experiences (UX) and customer experiences is crucial to keep pace with the competition and protect the bottom line. Companies now have access to a wide range of data sets that they can use to anticipate changes in customer demand and improve customer satisfaction. Besides internal data on customer interactions and transactions, third-party datasets are widely available that cover customer attitudes, purchase behaviors, preferences, and digital behaviors.

Data Insights Should Inform Business Plans

The quality of a company plan depends on its data. Data-driven business strategies estimate and forecast potential future outcomes based on previous events, and help leaders to determine the best course of action.

For example, for years Netflix has leveraged big data and business unit intelligence to propose new entertainment to its consumers and produce original films and television programs. That has helped the company to be one of the most recognizable brands in entertainment today.

How to Align Your Risks and Performance Management

Risk and performance management both begin by defining and disseminating organizational goals and objectives, followed by creating a strategy and cascading implementation across the company. Additionally, as initiatives are developed and approved for implementation, the associated risks should be noted and monitored along with performance outcomes.

Effective ERM is based upon the routine, systematic gathering and consolidation of data relevant to enterprise risks, just like enterprise performance management (EPM), which is significantly dependent on collecting, consolidating, and reporting of various financial and operational data and metrics.

Key risk indicators (KRIs), whether qualitative or quantitative, should be identified and monitored in the same manner as key performance indicators (KPIs); all such metrics serve as early warning systems. Key financial ratios, employee overtime, customer complaints, staff turnover, and the number of virus attacks are all metrics that can tip you off to bigger problems.

Improve Your Risk Management Processes with ZenRisk

As one might guess, developing the right business analytics tools to address risk and performance management is no easy feat. To coordinate all the necessary data and steps manually, with spreadsheets or other tools, is a fool’s errand; you’ll never keep everything running as efficiently as necessary. ZenRISK is an automated risk management tool that can help you get the job done.

Specifically, ZenRISK can help an organization to detect vulnerabilities, evaluate policies and procedures, and assure that remediation steps are happening in a timely manner. It can bring automation and efficiency as you try to comply with security frameworks including the EU General Data Protection Regulation (GDPR), California Consumer Privacy Act (CCPA), Health Insurance Portability and Accountability Act (HIPAA), and others.

ZenRisk is the best option for resolving compliance concerns and improving the management of your compliance strategy over time, thanks to support from subject matter experts, dynamic visualization content, and other technological risk assessment tools.

Schedule a demo to find out how we can assist your organization gain confidence in infosec risk and compliance.