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Risk management process

Risk management processes are receiving greater emphasis now than ever before, for a number of reasons.

There is a new regulatory emphasis on risk management, as evidenced by the Turnbull report, the Basel 2 regulations for banks, and, especially, the risk-based approach to regulation adopted by the FSA. Both Turnbull and the FSA are particularly strong on the process of risk management, while Basel perhaps places more emphasis on measurement (after all, Basel is all about risk-based capital requirements).

In addition there is a trend towards Enterprise Risk Management as an overall management technique, an example of the fact that risk management is currently very fashionable in management circles. Of course, this and the regulatory emphasis are probably not disconnected.

A good risk management process is typically a control cycle, including at least the following stages:

  • Establishing context
  • Identification
  • Assessment
  • Control and mitigation
  • Monitoring
  • Review