Question

Why is a systematic approach required for an effective risk management system?

Answer 1

Risk management is the process of identifying potential risks in advance, analyzing them and taking measures to reduce such risks which are likely to affect the organisation. Risk identification and assessment are the two processes which precede risk management

The success of risk management is dependent on the efficiency of the whole organisation, not the efficiency of individuals or processes. Traditional approaches to risk management fail to consider some characteristics of risks, such as unpredictability and interconnectedness. Such approaches seek to break down risks into small manageable components and thus they are ineffective in the real world. The risks in the real world are complex and interconnected which requires broader organisational awareness and responsiveness. Organisations have to apply leadership, accountability, and performance management systems for effective risk management.

An alternative approach to risk management is required which is based on a system paradigm and identifies the common characteristics of risks and their impact on the whole organisation. Systematic approach is an approach which serves these needs. It is based on increasing the overall awareness and responsiveness of organisations. It will help the organisation to identify the unexpected and responding appropriately when new risks arise.