The principles of risk management provide a framework for effectively identifying, assessing, and managing risks in a systematic and structured manner. By applying these principles, businesses can not only mitigate potential risks but also capitalise on emerging opportunities. This approach enables them to make informed decisions and achieve their strategic objectives with greater confidence.
The 7 principles of risk management are:
- Risk management should create value – Effective risk management should be viewed as a tool for creating value and achieving business objectives, rather than just a compliance exercise.
- Risk management is an integral part of organisational processes – It should be integrated into all aspects of an organisation’s processes and decision-making, rather than being seen as a separate activity.
- Risk management is part of decision-making – Risk management should be considered as part of the decision-making process, to ensure that risks and opportunities are taken into account when making important business decisions.
- Risk management explicitly addresses uncertainty – Risk management should address both known and unknown risks and uncertainties, and should consider the likelihood and potential impact of each risk.
- Risk management is systematic, structured and timely – Risk management should be carried out in a systematic and structured manner, using established processes and methods, and it should be carried out in a timely manner.
- Risk management is based on the best available information – Risk management should be based on the most reliable and up-to-date information available, and should take into account both internal and external sources of information.
- Risk management is tailored – Risk management should be tailored to the specific needs and characteristics of the organisation, taking into account factors such as the size, complexity, and nature of the business.
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