ISO 31000 is an international standard for risk management. It’s intended to help organizations (of any industry) with decision-making, risk analysis, and risk treatment.
Fundamentally, the risk management process endeavors to identify risk and then implement a management system to minimize the chance of that risk occurring-or, if the risk does occur, to reduce its harm and assure a speedy recovery. ISO 31000 provides a framework for organizations to assess their current risk management processes and make necessary improvements.
What is ISO 31000?
ISO 31000 is a risk management standard published by the International Organization for Standardization (ISO). It was first released in 2009, with the most recent edition (at the time of writing) in 2018. It offers a collection of recommendations designed to help firms streamline risk management.
ISO 31000:2018 is a single standard within the broader family of risk management standards known as ISO 31000. The risk management standards are all intended to be applied extensively across diverse sectors, niches, and company kinds, to give the best practice framework and advice to all operations wanting to employ risk management concepts.
There are two scopes associated with risk management. ISO 31000 describes them as:
- A risk management framework. This provides the foundations and organizational arrangements for designing, implementing, monitoring, and continually improving risk management throughout the organization.
- A risk management process. This is the set of management policies, procedures, and practices that ensure effective risk management. Ideally, the risk management process is guided by the risk management framework.
In other words, ISO 31000 offers a set of best practices so an organization can formalize its risk management practices. This approach is intended to facilitate the broader adoption of enterprise risk management by companies struggling with multiple “silo-centric” risk management systems.
Why is ISO 31000 Important for Risk Management?
Several elements of ISO 31000 attempt to help businesses integrate the ISO standard into their business plans. It’s important to note that ISO 31000 isn’t meant to replace an organization’s business plan but rather to integrate risk management principles into that plan. Risks such as damage to equipment, injury to staff or customers, and financial losses are all examples of what a business might seek to prevent.
The risk management process typically begins with a risk assessment. Included in the risk assessment is the identification of risk, an analysis of the risk, and an evaluation of that risk.
Following the risk assessment, an organization will decide what risk treatment to approach and then monitor and review the risk and results. Establishing the context of the risk and then choosing the communication and consultation surrounding the risk are also necessary steps to a sound risk management process.
Benefits of ISO 31000
Apart from simplifying the deployment of a risk management framework by handling the majority of the organizational and conceptual heavy lifting, it may also assist with the following:
- Because ISO is a globally recognized emblem of quality standards, it provides you with a competitive edge.
- Increase employee awareness of organizational risks by incorporating them into the management framework and empowering them to take responsibility for the processes they frequently use.
- Increase stakeholder confidence by remaining transparent and disclosing risks (and demonstrating risk responsibility and mitigation)
- Encourage workers to look ahead by pushing them to consider all possible outcomes of a particular circumstance.
- Improve business culture by bringing various divisions together to discuss new ideas and examine how they may operate more successfully.
- Increase the success rate of all corporate activities by focusing on the process, looking ahead rather than back, and giving people ownership of their job obligations.
What Are the Components of ISO 31000?
The ISO 31000 risk management approach has two key components:
The ISO 31000 Framework is modeled after the Plan, Do, Check, Act (PDCA) cycle, which is used to create all management systems. “This Framework is not designed to prescribe a management system, but rather to help the business integrate risk management into its overall management system,” according to the ISO. This remark should encourage businesses to be adaptable in integrating framework parts as needed.
The Framework’s major components include the following:
- Governance and policy. Establishes the mission and displays the organization’s commitment
- Program design. Design of the overarching framework for continuous risk management
- Implementation. Putting the risk management framework and program in place
- Monitoring and evaluation. Oversight of the structure and performance of the management system
- Continuous Enhancement. Enhancements to the overall management system’s performance
Organizations, particularly those with no experience with management systems, should plan to spend significant time developing a solid framework and resist the temptation to go right into the risk assessment process. Process design is critical because the Framework offers the consistency and continuity needed to develop a program rather than merely completing a project.
An organization is ready to construct the Process after creating the risk management Framework. ISO 31000 says the process is “multi-step and iterative; meant to identify and assess risks in the corporate environment.”
Regular communication is crucial early in the Process for understanding stakeholders’ interests and concerns and thereby confirming the Process’s emphasis. Later on, constant communication aids in conveying the reasoning behind decisions and why the firm requires particular risk remedies.
Furthermore, a constant inspection ensures that the company responds to changes in the risk environment and processes and that controls function properly. Together, these actions guarantee that all stakeholders clearly understand what is expected of them and that the organization responds to change as rapidly as feasible.
The actual risk assessment process begins with the definition of what ISO 31000 refers to as the “context.” The context is a synthesis of the external and internal surroundings as they relate to corporate goals and tactics.
The context-setting process begins with evaluating the organization’s internal and external surroundings during the Framework phase. Still, management should continue this assessment in greater depth here and focus on the scope of the specific risk management Process.
The subsequent phases in the assessment process entail establishing procedures for identifying, analyzing, and evaluating particular risks.
Risk Management in More Detail
Establish the context of the risk. This step selects a basic risk and places it within some specific part of your enterprise; then, you can apply risk management principles. For example, you could assess the risk of fraud and then specifically examine the potential for fraud within the accounting and financial reporting functions. The more precisely you can identify the corporate level, division, or business unit that will go through the risk management process, the better.
Identifying risk can be challenging, especially for risks that are difficult to predict-such as a zero-day malware attack or a natural disaster. (This is often described as the effect of uncertainty; you know the risk but have little sense of how probable it is.)
ISO 31000, as an international standard, addresses this by collecting an enormous amount of perspective from various organizations, which may have experiences other organizations do not. Comparing experiences helps companies identify risks that they may have yet to understand.
An analysis of the potential risk is necessary to determine what the risk is and assists in implementing effective risk management. For example, if an organization has a backup power generator, executives will need to decide where the fuel for that generator will be stored. Keeping combustible material close to the generator might be unwise. An analysis of that decision would point out that the spark plugs of the generator have a chance of igniting fumes of closely stored fuel and causing an explosion.
This step essentially assigns a grade to the risk: Is it high, medium, low, or something else? Again, using our fuel generator example: if the fuel is stored in a tank five feet away from the generator, that could put the fuel at high risk of igniting and exploding.
Usually, one part of the risk evaluation includes the potential physical and financial damages the threat poses to the business. In our generator’s case, the chance of an explosion would be high, and the likelihood of bodily harm and structural damage would be high too. Executives could model those costs (lost revenue, pain and suffering lawsuits, repair costs) to estimate the total potential damage from the risk.
Deciding how to treat specific threats is a crucial part of risk mitigation, and usually, the decision is made by a team of risk managers or consultants.
The generator and fuel example would depend upon the expertise of a fire chief inspecting the site and determining the safe distance to store the fuel. The chief may recommend that the fuel be stored in an underground tank, or that the organization use an alternative fuel source, or propose other mitigation steps.
Communication and Consultation
We see examples of communication and consultation about risk throughout daily life. For example, warning signs around the generator and fuel tank would be one way to communicate the danger and risk surrounding that specific asset. In addition, assigning a periodic inspection from a certified professional to ensure the assets function safely is an example of a consultative step in the risk management process.
Monitoring and Review
A periodic inspection and certification of safety equipment is a consultative action and a monitoring step. That is a crucial part of risk management, too: revisiting your risk management efforts to ensure that they still effectively address the risk in question.
For example, if technology changes and combustible fuels are no longer needed, the risk of storing those fuels would no longer be necessary. Therefore, the fuel could be removed, and the annual inspections discontinued.
How Reciprocity ROAR Can Improve Risk Management
Meeting the standards of ISO 31000 is no easy task. It requires significant coordination across the enterprise, with extensive demands for documentation of risks, controls, testing, and remediation work.
With The Reciprocity® ROAR Platform, you can leverage one platform for all your control, compliance preparedness, risk, governance, and policy management needs. ROAR provides your business with a single, integrated experience that reveals all risks across your business; and provides an easier, more automated path toward ISO 31000 implementation.
ROAR simplifies internal audits and preparation for external auditing with complete views of control environments, easy access to information necessary for program evaluation, and continual compliance monitoring to address critical tasks at any time.
Worry-free risk management is the Zen way! Learn more by scheduling a free demo today.