This article is taken from our quarterly overview of Canadian news, a newsletter published by the Canadian member firms of
Moore Stephens North America
. It is part of our mission to be the partner of choice for your success, by keeping you informed of the latest news and developments..
Risk management
It’s impossible for a company to eliminate the risks that threaten its success, but it can manage and reduce them by implementing a risk management process.
The main risk categories are as follows:
- Strategic: linked to the company’s operations, including changes in the industry.
- Operational: In line with the company’s operational and administrative procedures.
- Financial: Linked to the company’s financial structure and external factors such as exchange rates and interest rates.
- Compliance: In connection with the duty to comply with laws and regulations.
- Other: Related to reputational and human risk
The risks facing a company are constantly changing. They evolve in line with the market (new competitor, new product), the organization (international expansion strategy, acquisition of another company, initial public offering), the products (product obsolescence, mass recall of a defective product), and so on. So it’s vital to periodically reassess risks in line with changes in the company, the business sector or regulations, for example.
According to a 2015 study on the state of enterprise risk management in Canada conducted in 2015, 61% of respondents stated that their organization does not have a chief risk officer or equivalent (1). Without a designated risk assessment framework, it’s difficult to anticipate and adjust fire before the threat arises. Companies are therefore faced with emergency situations, and often don’t have the time to evaluate possible solutions, resulting in less enlightened and sometimes erroneous decisions.
A risk management process is the key to being proactive and controlling threats to your business.
Tips
- Seek input from front-line employees. These will target risks that are different from those of senior management, but just as important.
- Set up a formal communications plan for your employees.
And you,
- Do you have a risk management process?
- When was your last risk assessment?
- Are front-line employees as aware of the company’s risks as senior executives and the board of directors?
What is the risk management process?
The risk management process comprises five stages:
1. Identifying risks
2. Risk assessment
3. Development of risk response strategies
4. Implementing strategies
5. Follow-up and reassessment, where necessary
Once the risks have been identified, it’s essential to assess them. This makes it possible to determine the probability of the risk occurring, as well as the company’s tolerance of each risk, and then to develop a strategy specific to each one.
A company can decide to accept, transfer, reduce or eliminate risk.
Strategies can be as simple as carrying out regular machine maintenance to avoid breakdowns that could have a major impact on production (operational risk), obtaining an exchange rate contract to protect the company against exchange rate volatility (financial risk), or carrying out due diligence when acquiring a new company (strategic risk).
Our services
- Due diligence for acquisitions
- Optimizing your resources
- Review of your internal controls
- Developing an ethics policy
- Employee training (internal control, fraud)
- Assistance to senior management
(1) Comptables professionnels agrées du Canada et la Fondation de recherche des dirigeants financiers du Canada, « l’état actuel de la gestion des risques d’entreprise au Canada ».
Don’t forget, we’re your allies in risk management. Write to us!
