A risk strategy and policy are fundamental components of effective risk management within any organization. The strategy defines the high-level goals and approach, while the policy provides the detailed framework for implementation.
At its core, the risk strategy outlines an organization's overall approach to managing risks, setting the desired outcomes and the general methods to achieve them. The risk policy, on the other hand, provides the specific rules, guidelines, and procedures that govern how risk management activities are carried out in practice.
Understanding the Risk Strategy
Based on the provided reference, a risk strategy sets out what you want to achieve as outcomes for the management of risks and how you intend to achieve it. It's the high-level plan that guides an organization's risk management efforts.
Key aspects of a risk strategy include:
- Setting Goals: Defining what successful risk management looks like for the organization.
- Determining Approach: Outlining the general methods and philosophies the organization will use to identify, assess, treat, monitor, and report risks.
- Scope: A risk management strategy can cover all aspects of your business, from safety, financial, operational and reputational risk goals.
- Alignment: Ensuring risk management aligns with the organization's overall strategic objectives.
Think of the strategy as the 'what' and the 'why' – what the organization wants to achieve regarding risk and why that is important for its success.
Understanding the Risk Policy
While not explicitly defined in the reference, the risk policy operationalizes the strategy. It is a formal document approved by senior management that provides the detailed framework and rules for managing risks.
A risk policy typically includes:
- Principles and Values: The foundational beliefs guiding risk decisions.
- Roles and Responsibilities: Clearly defining who is responsible for what aspects of risk management at different levels of the organization.
- Risk Appetite and Tolerance: Defining the level of risk the organization is willing to accept in pursuit of its objectives.
- Methodology: Specifying the standard processes, tools, and techniques to be used for risk identification, assessment, treatment, monitoring, and reporting.
- Reporting Requirements: How risk information is reported, to whom, and how frequently.
- Compliance: Ensuring risk management activities comply with relevant laws, regulations, and standards.
The policy is the 'how' – the specific instructions and requirements for putting the strategy into action consistently across the organization.
The Relationship Between Strategy and Policy
The risk strategy and policy are closely related and interdependent. The strategy provides the direction and objectives, while the policy provides the governance structure and operational details needed to execute the strategy effectively.
| Feature | Risk Strategy | Risk Policy |
|---|---|---|
| Purpose | Sets high-level goals and overall approach (What & Why) | Provides detailed rules and framework for implementation (How) |
| Focus | Outcomes for risk management, alignment with business goals | Standardized processes, roles, responsibilities, reporting, compliance |
| Scope | Can cover various business aspects (safety, financial, operational, reputational) | Specific requirements for risk management activities across the organization |
| Document | Often a high-level plan or component of overall business strategy | A formal, detailed document outlining procedures and requirements |
A well-defined strategy informs a robust policy, and a clear policy facilitates the successful execution of the strategy. Together, they form the foundation of a strong organizational culture of risk awareness and proactive management.
Practical Insights
Implementing a successful risk strategy and policy requires:
- Leadership Buy-in: Support from the top is crucial for setting the tone and allocating resources.
- Clear Communication: The strategy and policy must be understood by all relevant personnel.
- Integration: Risk management should be integrated into daily operations and decision-making processes, not treated as a standalone activity.
- Regular Review: Both the strategy and policy should be reviewed periodically and updated to reflect changes in the business environment, risks, and objectives.
By clearly defining both the risk strategy (the goals and overall approach) and the risk policy (the rules and procedures for implementation), organizations can establish a structured and consistent way to manage uncertainties and protect their assets and objectives.
