Risk management is an integral aspect of operating in any sector, and effective risk management strategies can be powerful tools to monitor, mitigate or eliminate risks.
The risk management policy underpins your strategy and sets out the key principles, such as the basis for assessing a risk to consider its severity, governance protocols and events or triggers that indicate your strategy requires re-evaluation.
However, one of the important factors to remember is that risk management in logistics and supply chain settings, among many others, isn’t a standalone job. Rather, it is an ongoing process where you define how you will respond when things go wrong or identify the safeguards you can put in place to prevent negative outcomes.
What Is a Risk Management Policy?
Organizational policies provide clear, consistent instructions and standards, and risk management helps businesses follow a cohesive series of actions at any stage of evaluating, monitoring, or addressing risk. Systematic risk management ensures that every colleague follows the same structure when approaching a risk-based scenario or project so that risk is managed comprehensively across the board.
Your policy might include the following:
- Specific rules or guidelines related to the business
- Risk management parameters appropriate for the sector or industry
- Stipulations about how risk is assessed and quantified
- Timelines for regular risk strategy reviews or circumstances that dictate that the strategy needs to be updated or refreshed
- Instructions about the personnel or senior managers responsible for revising risk appraisals or reviewing a risk management strategy
Every risk policy should be customized to the trading environment, jurisdictions, regulatory frameworks, and objectives of the organization and aligned with the risks they might expect to encounter.
Writing a Risk Management Policy Step by Step
The first element of creating a robust risk management policy is to consider the nature of the risks, or potential risks, that are most likely to impact your organization. Some risks may be obvious, such as currency exchange risks when trading across borders, but others can be more nuanced and difficult to predict.
While your policy differs from your risk management strategy, this initial assessment can help with each subsequent step because there may be different roles or duties linked to long-term risk management. For example, a business-critical risk may fall under the scope of a board of directors or senior risk manager; in contrast, general operational risks, such as missing a delivery date, could be assigned to a logistics manager or supervisor.
Defining Your Risk Management Process
Next, your policy should incorporate explanations, ensuring that anybody referring to the guidance will understand the expected action they should take. The focus of any organizational policy is to avoid doubt and be accessible at all appropriate levels, so you might wish to include a separate section on each element of your process, such as:
- Communication procedures: How colleagues should report risks, escalate risk management, and collaborate with different departments
- Risk analysis criteria: A clear list of how risk analyses are conducted and how risks are quantified, with parameters that indicate the risk level assigned
- Directions on record-keeping: How risk managers and workforce members should record risks or catalogue events for future reference
- Monitoring protocols: Allocating responsibility for risk monitoring, how often strategies or actions are re-assessed, and how these are incorporated into everyday activities
Other components include links to strategy documents with more detailed directions on the appropriate response or how teams should calculate the probability of a risk occurring.
Creating a Risk Management Methodology
Finally, your risk management policy should set out guidelines for every phase of risk management based on your overall aims and compliance requirements. Risk managers and leadership teams can use their policy to outline their accepted risk appetite based on grading systems or other criteria and state where a risk falls outside of the accepted tolerance levels.
This clarity is invaluable, ensuring that every ongoing and future risk is graded, actioned, and monitored uniformly without relying on ad hoc decision-making.