Risk management is a core component of maintaining ISO compliance. By identifying, assessing, and mitigating risks, organisations can not only safeguard their reputation and minimise risks to their longevity, but also correct non-conformities and ensure that their processes and procedures stay aligned with ISO guidelines.
Just as the ISO Standards themselves are developed with a variety of industries in mind, so too are risk management strategies inclusive of different industrial and professional contexts. This is why risk management frameworks recognise 4 main categories of risks.
Today, our ISO consultants here at S&J Auditing & Consulting will outline these 4 risk categories, providing insights on how your organisation can master your understanding of its unique risks, and ultimately develop stronger risk assessment and management procedures.
What are Risk Categories?
Risk categories are distinct groups of risks where each group or risk type is accompanied by its own unique characteristics, impacts, and risk management frameworks.
Within the library of ISO Standards, there are supporting Standards for ISO Certification Standards that break down ideal risk management frameworks for each of the 4 main categories of risks. This segmentation of risks helps organisations better identify risks in real-world contexts, and employ tailored processes for managing those risks.
The 4 Main Categories of Risks
1. Strategic Risks
Strategic risks are defined as any risks that can hinder organisations from achieving their business goals. Some examples of strategic risks can include:
- Volatile budgets and budgeting
- Fluctuations in market conditions
- Emerging or rapidly scaling competitors
- Fluctuations in consumer demands/needs
Routinely reviewing business development planning and growth strategies can help organisations to better monitor and mitigate strategic risks over the long term.
2. Financial Risks
Financial risks refer to any risks that have the potential to result in financial losses for an organisation. Some examples of financial risks include:
- Growing liabilities over assets in balance sheets (i.e. liquidity risks)
- Growing interest rates (i.e. credit and loan risks)
- Fluctuations in market costs like supplier costs (i.e. market risks)
Robust bookkeeping is a foundational measure for mitigating financial risks. Additional measures can include diversification of products/services, maintaining dynamic supplier and partner relationships, diversifying business investments, and securing business insurance.
3. Operational Risks
Operational risks refer to risk factors that can be identified across an organisation’s operational processes, systems, and staff. Some examples of operational risks include:
- System failures and inefficiencies
- Incomplete workflows or work cycles
- Confused organisational hierarchies
- Ineffective internal communications
- High staff turnover
- Human or mechanical error
- Data breaches
Operational risks can be managed effectively by:
- Identify the key processes within the organisation
- Conducting risk assessments of each of these processes
- Establishing a risk-based internal audit plan/schedule
- Conducting internal audits against these processes, to ensure sufficient risk controls are in place and sufficient
- Implementing continual improvements from internal audit findings and results.
4. Compliance risks
Compliance risks refer to any identified risks that have the potential to result in non-conformities or areas of non-compliance for your organisation. Some notable examples of compliance risks include:
- Policy violations
- Inconsistencies in policy/procedure implementation
- Breaches of ethical standards
- Breaches of regulatory requirements
Similarly to operational risks, compliance risks can be managed by scheduling ISO internal audits with consistency and following ISO and other compliance frameworks as needed to systemically identify and address any recognised compliance risks. By maintaining a proactive approach to implementing corrective actions and maintaining ISO Certification, organisations can ensure their compliance risks stay minimal.
What is the Purpose of Risk Categories?
Categorising risks into these 4 distinct categories has helped simplify risk management in a few distinct ways.
Developing Risk Management Frameworks
The 4 risk categories all align with unique risk management frameworks as outlined in ISO Standards and in other governing documents (i.e. regulatory policies, nationally recognised AUS/NZ standards, etc.).
Using these tailored frameworks, organisations can implement tailored strategies for managing each individual type of risks identified across their operations, systems, and structures.
Streamlining Risk Management and Communications
Breaking down risk factors into 4 distinct categories has also made it easier for organisations to communicate risk management processes internally and externally (i.e. to external auditors). By maintaining a consistent, easy-to-understand language and vocabulary across risk management strategies, we make risk mitigation accessible for all organisations and industries, and to staff at all levels across an organisational hierarchy.
Tailoring Risk Assessment Solutions
Dedicated risk management frameworks = tailored risk assessment solutions. With a clear understanding of the risk categories and how best to address all the types of risks, business leaders and their strategists waste no time in developing optimised risk assessment solutions that are tailored to their organisation and its operations/systems.
Supporting Compliance
By following defined risk management frameworks, organisations can ensure that their risk management processes stay fully compliant with not only ISO Standards, but any other regulatory frameworks that are relevant to their compliance requirements.
How to Identify Risks in Your Business or Organisation
Although the 4 risk categories are well-defined, it is possible for any given risk to fall into multiple categories. For instance, a budgeting or company spending risk can be both financial and strategic in nature.
For this reason, organisations must also utilise dynamic risk assessment procedures that help to identify dynamic or complex risks. Here are some key components to include in any dynamic risk assessment procedure.
Robust Analytics Processes
Data-driven decision making supports organisations in not only simplifying business development planning, but also systemically pinpointing and identifying business risks. By implementing consistent analytics processes and data storage protocols, organisations can maintain access to real-time data insights, and compare these insights to historical data points to better monitor changes over time.
Scenario Planning
Scenario planning and contingency planning can help organisations proactively determine necessary steps to take in the event that a risk develops following particular actions or updates (i.e. corrective actions, process updates, etc.). By planning for all possible outcomes, organisations can also ensure that corrective action strategies stay on-track and deliver the desired results with minimal development of risks.
SWOT Analysis
A SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis can be conducted across an entire organisation or even within departments or teams to independently monitor known risk factors, or even to identify emerging or evolving risks.
Internal Audits and Management Reviews
Internal audits that culminate in detailed audit reports can help organisations thoroughly document risks and the evolution of those risks and risk mitigation strategies over time. In conducting management reviews following internal audits, organisations can also ensure there are plenty of opportunities for business leaders, stakeholders, and other key decision-makers to contribute to discussions and action strategies in the face of identified risks.
Proactive Non-conformance Reporting and Corrections
Finally, maintaining robust non-conformance reporting procedures can also support organisations in documenting and managing risks over time. This is essential for organisations that have identified risks with a higher likelihood of recurrence (i.e. operational risks associated with machine failure, human error, etc.). Maintaining a proactive approach to corrective non-conformities can also help prevent a non-conformance from snowballing into a larger, more complicated risk.
Strengthen your Risk Management Processes with Support from S&J Auditing & Consulting
The best approach to risk management is systematic and collaborative. In other words, the best approach to risk management is powered by ISO Management Systems. Whether you’re looking to attain ISO 9001:2015 Certification or a dynamic HSEQ Management System, our team of experts here at S&J Auditing & Consulting can help you develop solutions that are tailored to your organisational goals and objectives.
Want to learn more about our ISO auditing and consulting services? Contact our team by calling 0409 933 447, or by placing an enquiry via our website.
