“Dealing with risk is part of governance and leadership, and is fundamental to how an organization is managed at all levels.”

We analyze and manage risks every day. From crossing the street, correctly preparing food, fastening seat belts, to coordinating a journey via public transit. Each of these is an example of a risk management process happening in our heads; sometimes the result of "common sense," sometimes these decisions are made unconsciously. When it comes to business management, a more rigorous, formalized approach is needed. One such strategy for managing risk is to utilize standards for risk management, like ISO 31000. This approach is useful in pretty much any situation, for organizations of all shapes and sizes, to manage risk in their everyday operations. Risks affecting organizations can have consequences in terms of economic performance and professional reputation, as well as environmental, safety and societal outcomes. Therefore, managing risk effectively helps organizations to perform well in an environment full of uncertainty.

What is ISO 31000:2018?

Simply put, ISO 31000 is a standard for risk management. First published in 2009, with the most current version being 2018, it describes a set of guidelines intended to streamline risk management for organizations. ISO 31000:2018 is a single standard in a larger family of risk management standards, generally referred to as ISO 31000. The risk management standards of ISO 31000 are all designed to be used broadly, across various industries, niches, and business types, to provide the best practice structure and guidance to all operations seeking to use the principles of risk management. ISO 31000, Risk management – Guidelines, provides principles, framework and a process for managing risk. It can be used by any organization regardless of its size, activity or sector. Using ISO 31000 can help organizations increase the likelihood of achieving objectives, improve the identification of opportunities and threats and effectively allocate and use resources for risk treatment. However, ISO 31000 cannot be used for certification purposes, but does provide guidance for internal or external audit programmes. Organizations using it can compare their risk management practices with an internationally recognised benchmark, providing sound principles for effective management and corporate governance.

The ISO 31000 Family

Like many ISO standards, ISO 31000 refers to an umbrella of risk management standards. So far, the ISO 31000 family consists of:

• ISO 31000:2018 (Principles and Guidelines on Implementation).
• ISO/IEC 31010:2009 (Risk Assessment Techniques).
• ISO Guide 73:2009 (Risk Management Vocabulary).

Each of these supplements one another; they’re all designed to provide a clear and universally applicable set of guidelines and best practice principles for risk management.

Risk Management Simplified With ISO 31000:2018

ISO 31000 aims to simplify risk management into a set of clearly understandable and actionable guidelines, that should be straightforward to implement, regardless of the size, nature, or location of a business. Risk for ISO 31000 is defined as "the effect of uncertainty" on business objectives. This effect can be both positive or negative. ISO 31000 is an effort to acknowledge that business operations always contain a degree of uncertainty, and therefore, risk. No matter what our business goals, there’s always a chance that things might go wrong. When you break down a business goal into a process, you can look at that process in terms of each step along the way, towards the eventual outcome of that process. Risk management involves looking at the element of risk present in each of those steps, and trying to manage it.

Benefits of ISO 31000

Why use ISO 31000? What can it do for your business? Well, aside from streamlining the implementation of a risk management framework by doing most of the structural and conceptual heavy lifting for you, it can also help with:

• Giving you a competitive advantage because ISO is an internationally recognized symbol for quality standards.
• Increasing employee awareness of organizational risks by including them in the management framework and giving them responsibility for the processes they commonly use.
• Reduce the frequency of, and ultimately eliminate risks by educating employees and stakeholders on identified risks.
• Improve trust of stakeholders by maintaining transparency and communicating risks (and demonstrating risk responsibility and mitigation).
• Foster forward-thinking mentalities by encouraging employees to envision all potential outcomes of a given situation.
• Improve company culture by bringing disparate departments together to exchange fresh perspectives, and consider how they might work together more effectively.
• Improve success rate in all business operations by focusing on the process, thinking preemptively instead of reactively, and giving employees ownership of their work responsibilities.

Principles of ISO 31000

One of the core ideas of ISO 31000 is that risk management exists to create and protect value. This idea is expanded upon by the eight principles of ISO 31000, which are:

1. Risk management must be integrated into all business operations and activities.
2. The approach must be structured and comprehensive.
3. Processes and the risk management framework should be customized to suit the organization’s goals and context.
4. Stakeholders must be involved with the management framework; it must be inclusive.
5. Risk management must be dynamic and robust; preemptive thinking, anticipating, detecting, acknowledging and responding to changes.
6. Risk management takes into account any limitations of available information.
7. Human and cultural factors are paramount, and should be considered at all stages and aspects of risk management.
8. The risk management framework is continuously improved through learning and experience.​

These principles clearly describe the most important factors for an effective and efficient risk management framework, according to ISO 31000.

Framework of ISO 31000

The term "framework" is thrown around a lot, especially when talking about any kind of standard. What exactly does it mean? ISO 31000 defines a risk management framework as: “a set of components that support and sustain risk management throughout an organization.” 

More specifically, ISO 31000 defines six distinct areas that make up the total "framework" for risk management:

• Leadership and communication.
• Integration.
• Design.
• Implementation.
• Evaluation.
• Improvement.​

The eight principles of risk management outlined above are closely related to the areas defined in the ISO 31000 framework. For example, the idea of a well-integrated risk management system is both one of the principles, as well as one of the core components of the framework. How do they relate to one another? The principles are like objectives, describing what needs to be achieved, and the framework is like the information about how to achieve those objectives.

Process of ISO 31000

Let’s start with the two most important building blocks:

• Risk assessment.
• Risk treatment.

These two areas form the core of risk management, according to ISO 31000. We can zoom in a little further – risk assessment breaks down into:

• Identification.
• Analysis.
• Evaluation.

Risk treatment, otherwise known as risk response, is simply the action taken in response to the identification, analysis, and evaluation of risks. It’s important to note that ISO 31000 does not outline a process for risk management in and of itself; rather, it is a set of guidelines intended to help you figure out or improve your own process.

Risk Management and Continuous Improvement

Continuous improvement is another significant concept to understand for ISO 31000. Without a company culture strongly aligned with principles of continuous improvement, organizations will struggle to implement, let alone maintain successful risk management programs. This can be challenging in practice, as cultivating a risk management attitude within a company involves aligning risk initiatives with existing company values, policies, and, to put it simply, convincing everyone involved that risk management is worthwhile. However, improving risk culture is possible and, like many things, it becomes a lot easier when you have a process for it. Such a process can be separated into three stages:

• Cultural awareness.
• Cultural change.
• Cultural refinement.

Revision of ISO 31000

The revision work follows a distinct objective: to make things easier and clearer. This is achieved by using a simple language to express the fundamentals of risk management in a way that is coherent and understandable to users. The standard provides guidelines on the benefits and values of effective and efficient risk management, and should help organizations better understand and deal with the uncertainties they face in the pursuit of their objectives. To avoid weighing down the standard and making it too complex, it was decided to reduce the terminology of ISO 31000 to the barebone concepts and move certain terms to ISO Guide 73, Risk management – Vocabulary, which deals specifically with risk management terminology and is intended to be read alongside ISO 31000. Strengthened by its generic quality, the standard provides the basis for renewed confidence between experts and end users, who each face specific challenges in terms of risk but need to understand and communicate with others stakeholders. As such, the clause on building a risk management framework, which contains guidance that is relevant for every possible user, has since been augmented with additional concepts or examples that are specific to countries and industries.

ISO 31000:2018 update, which replaced the prior version from ISO 31000:2009, provides:

• Updated and simplified language and reference structures.

• A renewed focus on the key leadership role that boards and top management must play in ensuring that risk management is fully integrated at all levels of the organization.

• Greater attention to the cyclical and iterative nature of risk management, which underscores the notion that organizations must evaluate their risk management process in light of new information or in response to feedback about gaps that might be present in the current risk process or associated controls.

Summary

ISO 31000 can be invaluable for preparing a business for all eventualities; by understanding the worst-case scenario, a business is better equipped to make the most of the resources and opportunities currently available to them. While ISO 31000 is certainly one of many guideline documents for implementing risk management, one of its stand-out strengths is its concise format. You’d have a hard time finding a more comprehensive document that succeeds in condensing so much information into such a coherent and concise set of guidelines. Without a doubt, ISO 31000 is one of the foremost documents for those who want to waste no time in getting started with risk management, without sacrificing quality or integrity.

ISO 31000 Consultation in Jordan

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Conclusion

As a leader in consultation services, AAC MENA offers unrivaled experience and expertise in ISO 31000 requirements. Our presence in the Middle East and harmonized approach give you access to the largest independent network of consultants and advisory services in the region.

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