Types of Risk Management Policies: What You Need to Know


Companies can choose from varied risk management strategies, depending on their sector, business-critical risks, and the impact a threat will likely have on their revenue, reputation, and overall profitability.

It is important to note that risk management in logistics and supply chain environments will differ from other trading spaces, as some unavoidable risks may not require immediate action, or could be considered an acceptable risk linked to the industry or setting.

Learning how to monitor risk management plan policies and strategies is also fundamental.This is where you select the most appropriate approach and have the systems and procedures in place to implement reviews and modifications as necessary.

Risk Management Policies vs Strategies

Policy and strategy are two different resources often confused in risk management:

  • Risk management policies set out regulations, rules, and definitions as the framework for building a strategy–the policy includes details about how you measure risk, which level of risk requires which priority procedure, and who is responsible for monitoring and reviews.
  • A risk management strategy is an actionable plan that incorporates the objectives and instructions within your policy, showing how you will achieve your goals.

Organization-wide risk management systems are ideal, where risk controls are not segmented or discreet but instead function as a broader-scope business protection process, ensuring that all the essential parts of the company are performing well.

Choosing the Right Risk Management Policy

In some scenarios, it may be easier for risk managers to begin by considering the most suitable strategy for the business in question, with four primary ways to tackle risks:

  • Risk acceptance exists because some risks are impossible to eliminate and are an accepted part of the business.
  • Risk transference shifts the impact of a risk to somebody else, such as taking out insurance coverage.
  • Risk avoidance means the business eliminates the potential of the risk by side-stepping the situation where it may arise, such as choosing not to invest in something where the risk of loss is unacceptably high.
  • Risk reduction mitigates the severity of risk or dilutes the possible impact, reducing the likelihood and outcomes of a risk occurring.

These four categories show types of risk response, and one risk management policy might include guidance and clarity over when each should be deployed, to what extent, and by whom.

Risk Governance Policies

Governance stipulates the responsibilities associated with risk management and provides the basis on which senior leaders or managers are tasked with delegating aspects of risk management to their workforces. For example, reporting, recording, measuring, and analyzing instances of error can help develop a keen oversight of which issues occur most often and in what circumstances.

Risk governance policies also determine who is responsible for approving risks, setting tolerances and exceptions, or producing risk reports for key decision-making.

Risk Measurement Policies

There are several ways to measure risk and quantify either the exposure level or the potential impact of a threat, which helps managers decide how much effort or investment they should contribute to reducing their risk profile.

Market risk is easy to quantify based on shared values, but other risks can be extremely difficult to assign a tangible value to. The risk management policy assists by clarifying how risk is measured, based on which variables, and the practicalities involved.

Risk Reporting Policies

Reporting and monitoring are just as important as having a dedicated risk management policy, and this section or separate policy document is there to help businesses measure aggregate risks and ensure they remain within an acceptable tolerance.

Risk reporting policies define how often reports are produced, which metrics they analyze, and how businesses leverage that information to decide on the right risk control approaches.

About the author

Author: FITT Team

The Forum for International Trade Training (FITT) is the standards, certification and training body dedicated to providing international business training, resources and professional certification to individuals and businesses. Created by business for business, FITT’s international business training solutions are the standard of excellence for global trade professionals around the world.

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