We hear of major risk events in the headlines with all too much frequency. Whether it’s a train derailment spilling toxic chemicals into a small town, devastating tornadic activity ripping communities apart in the South, or large bank failures igniting panic, such events make us wonder what we can do to better understand and manage risks. Risk is inherent in any activity, whether at the individual, corporate, national, or even global level, and yet most of us go on with our daily lives without a framework for assessing risk. Some companies are more proactive about managing risks than others, especially those with human safety and property protection at stake, such as airlines, hospitals, and drug manufacturers. However, every company, governmental agency, and NGO should have a risk management program with staff trained in these concepts.

Building Blocks of Risk Management

At its core, effective risk management requires a risk-aware mentality and culture. Think of the complexity of tasks transpiring during the launch and retrieval of an aircraft. This requires a sophisticated set of operational risk protocols and processes with which crew members are acquainted. Without proper crew training, the likelihood of a catastrophic flight deck event would be unacceptably high. Another essential ingredient of risk management is governance. This provides structure around the oversight and communication of risks to accountable parties.

Inherent in that structure are the processes and controls, systems, data and analytics, or collectively, the infrastructure needed to identify, measure, and manage risks. A robust risk management capability enables organizations to size up emerging risks and threats systematically and consistently across the enterprise. Such frameworks can save lives, reduce reputation risk, save costs, and ensure the long-term viability of an organization. Building a risk-aware culture within an organization that can tap into these core risk management components is critical. Effective risk training is key to that outcome.

Developing a Risk-Aware Organization

The risks within organizations vary widely depending on the nature of activities carried out. Financial and operational risks are commonplace at financial institutions, while other companies face considerable operational risk. If left unchecked, such operational threat can spill over into reputational, legal, and regulatory risk.

Understanding the differences between risk types, how risks interrelate, and how they manifest at the institutional level should be incorporated into an organization’s onboarding and training process. Likewise, this should include a basic outline of the company’s risk management process or framework. Building on these fundamentals, organizations should incorporate case studies of real risk events into their training to learn from prior incidents.

Finally, building team-based risk simulations that enable employees to test core risk management concepts with realistic scenarios is an effective training tool that allows learners to practice and refine risk management skills in a controlled environment. When a real risk event occurs, teams will know how to handle split-second decisions and fluid and volatile conditions.

Parting Thoughts

The nature of any endeavor is fraught with risk. Too little or too much risk can threaten the survival of any organization. Striking the right balance to risk taking requires a commitment by management and boards to building a risk-aware culture. Once that’s in place, educating employees on the basics of risk management can pay dividends by establishing a risk-principled organization that’s built to last.