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  • Julien Haye

How to Structure a Risk Policy Framework

How to structure a policy framework


A risk policy framework is a fundamental element of the strategic management of any organisation. It is a structured approach that guides the business’ decision-making process in managing risks and it has a direct impact on the management of strategic resources such liquidity and capital.


The framework consists of a set of guidelines, procedures, and standards that define how risks are identified, assessed and or measured, and managed. It outlines the organisation's risk appetite, risk tolerance, and risk management objectives.


By aligning risk policy with strategic management, both the Board of Directors and the executive team can ensure that risk management practices are consistent with its overall business objectives.


The Enterprise Risk Management Policy


The Enterprise Risk Management Policy (ERM policy) provides the enterprise-wide principles and requirements guiding risk management practices across the organisation. I worked for financial firms that had split the Risk Management Principles from the Enterprise Risk Management Policy in a stand-alone document to give them more clout.


The ERM policy is organised based on four essential components that support strategic rmanagement. The first component is risk identification, which involves identifying potential risks that could affect all part of the business. This step requires reviewing the operations, processes, and systems to determine where risks may arise. Risks can originate from various sources, including internal factors such as human error, equipment failures, and process inefficiencies, and external factors such as economic conditions, regulatory changes, and natural disasters. assessment must be conducted both in the context of strategic and operational management of the firm.


The second component is risk assessment, which involves evaluating the probability and severity of each risk and determining its potential impact on the organisation's goals and objectives. The risk assessment process helps to prioritise risks based on their potential impact, enabling the business teams to focus its risk management efforts on the most critical risks.


The third component is risk mitigation, which involves developing strategies to manage or mitigate the identified risks. This step may include implementing controls or procedures to prevent or reduce the likelihood of the risk occurring, or developing contingency plans to respond to the risk if it does occur. The risk mitigation process should be guided by the organisation's risk appetite, risk tolerance, and overall business objectives.


The fourth component is risk monitoring, which involves ongoing monitoring of the risks to ensure they continue to be effectively managed. This step requires regularly reviewing the firm’s risk management practices and procedures, as well as monitoring changes in the internal and external environment that could affect the organisation's risk profile. The risk monitoring process helps to ensure that the organisation remains aware of potential risks and can respond quickly and effectively if necessary.


Additional Risk Policies


To identify which policies to write as part of a risk policy framework, it is necessary to consider the nature of its business operations and the risks that it faces. It is important to involve all relevant stakeholders in the process of identifying and prioritising risks to ensure that the organisation has a comprehensive understanding of its risk profile. This may involve consulting with employees, customers, suppliers, regulators, and other relevant parties.


Based on the results of the risk identification and assessment process, an organisation should prioritise the risks that are most critical to its operations and develop policies and procedures to manage those risks. The policies should be written in a clear and concise manner and should include specific guidance on how the organisation will identify, assess, mitigate, and monitor the identified risks.


Here are some recommended risk policies that organisations should consider including in their risk policy framework:


  • Business Continuity and Disaster Recovery Policy: This policy should outline the procedures and processes for ensuring that critical business functions can continue in the event of a disaster or other disruptive event.

  • Information Security Policy: This policy should outline the measures that the organisation will take to protect sensitive and confidential information, including data privacy, cybersecurity, and access control.

  • Occupational Health and Safety Policy: This policy should outline the measures that the organisation will take to ensure the health and safety of its employees, including risk assessments, training, and emergency procedures.

  • Financial Risk Management Policy: This policy should outline the measures that the organisation will take to manage financial risks, including credit risk, market risk, liquidity risk, and operational risk.

  • Compliance Policy: This policy should outline the organisation's commitment to complying with relevant laws and regulations, including ethical standards, and the procedures for monitoring compliance and addressing any violations.

  • Reputation Risk Management Policy: This policy should outline the measures that the organisation will take to protect and enhance its reputation, including crisis management and stakeholder communication strategies.


By aligning risk policy with strategic management, the organisation can ensure that its risk management practices are consistent with its overall business objectives. This structured approach provides a systematic way to identify, assess, prioritise, and manage risks, enabling organisations to make informed decisions about risk and respond quickly and effectively to changing circumstances. Overall, the risk policy framework is a critical tool in managing risks in an organisation, and developing a risk policy framework is a critical step in ensuring that an organisation can manage risks effectively.


Don't hesitate to reach out if you need any help with structuring (and or writing) your risk policy framework.


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