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For the purposes of the Integrated Risk Management Framework: Integrated risk management is a continuous, proactive and systematic process to understand, manage and communicate risk from an organization-wide perspective. It is about making strategic decisions that contribute to the achievement of an organization's overall corporate objectives. Integrated risk management requires an ongoing assessment of potential risks for an organization at every level and then aggregating the results at the corporate level to facilitate priority setting and improved decision-making. Integrated risk management should become embedded in the organization's corporate strategy and shape the organization's risk management culture. The identification, assessment and management of risk across an organization helps reveal the importance of the whole, the sum of the risks and the interdependence of the parts. Integrated risk management does not focus only on the minimization or mitigation of risks, but also supports activities that foster innovation, so that the greatest returns can be achieved with acceptable results, costs and risks. Integrated risk management strives for the optimal balance at the corporate level. The Government of Canada has already used an integrated risk management approach to manage risk related to Y2K and is currently applying the approach to other major initiatives such as Government On-Line and Program Integrity. An Integrated Risk Management FrameworkThe Integrated Risk Management Framework provides guidance to adopt a more holistic approach to managing risk. The application of the Framework is expected to enable employees and organizations to better understand the nature of risk, and to manage it more systematically. Four Elements and Their Expected ResultsThe Integrated Risk Management Framework is comprised of four related elements. The elements, and a synopsis of the expected results for each, are presented below. Further details on the conceptual and functional aspects of the Framework are provided in subsequent sections of this document. Element 1: Developing the Corporate Risk Profile
Element 2: Establishing an Integrated Risk Management Function
Element 3: Practising Integrated Risk Management
Element 4: Ensuring Continuous Risk Management Learning
The four elements of the Integrated Risk Management Framework are presented as they might be applied: looking outward and across the organization as well as at individual activities. This comprehensive approach to managing risk is intended to establish the relationship between the organization and its operating environment, revealing the interdependencies of individual activities and the horizontal linkages. While it is acknowledged that some departments are more advanced than others in moving towards the implementation of an integrated risk management approach, there is growing appreciation across the Public Service of the need to strengthen risk management practices and develop a more strategic and corporate-wide focus. Implementing integrated risk management will depend largely on an organization's state of readiness, overall priorities and the level of effort necessary to implement the various elements. As a result, developing a more mature risk management environment will require sustained commitment and will evolve over time. This Framework is a step in establishing the foundation for integrated risk management in the public sector. It is acknowledged that to support and facilitate implementation, the development of specific tools and guidelines as well as sharing of best practices and lessons learned will be required. Element 1: Developing the Corporate Risk ProfileA broad understanding of the operating environment is an important first step in developing the corporate risk profile. Developing the risk profile at the corporate level is intended to examine both threats and opportunities in the context of an organization's mandate, objectives and available resources. In building the corporate risk profile, information and knowledge at both the corporate and operational levels is collected to assist departments in understanding the range of risks they face, both internally and externally, their likelihood and their potential impacts. In addition, identifying and assessing the existing departmental risk management capacity and capability is another critical component of developing the corporate risk profile. An organization can expect three key outcomes as a result of developing the corporate risk profile:
External and Internal EnvironmentThrough the environmental scan, key external and internal factors and risks influencing an organization's policy and management agenda are identified. Identifying major trends and their variation over time is particularly relevant in providing potential early warnings. Some external factors to be considered for potential risks include:
Internally, the following factors are considered relevant to the development of an organization's risk profile: the overall management framework; governance and accountability structures; values and ethics; operational work environment; individual and corporate risk management culture and tolerances; existing risk management expertise and practices; human resources capacity; level of transparency required; and local and corporate policies, procedures and processes. The environmental scan increases the organization's awareness of the key characteristics and attributes of the risks it faces. These include:
An organization's risk profile identifies key risk areas that cut across the organization (functions, programs, systems) as well as individual events, activities or projects that could significantly influence the overall management priorities, performance, and realization of organizational objectives. The environmental scan assists the department in establishing a strategic direction for managing risk, making appropriate adjustments in decisions and actions. It is an ongoing process that reinforces existing management practices and supports the attainment of overall management excellence. Assessing Current Risk Management CapacityIn assessing internal risk management capacity, the mandate, governance and decision-making structures, planning processes, infrastructure, and human and financial resources are examined from the perspective of risk. The assessment requires an examination of the prevailing risk management culture, risk management processes and practices to determine if adjustments are necessary to deal with the evolving risk environment. Furthermore, the following factors are considered key in assessing an organization's current risk management capacity: individual factors (knowledge, skills, experience, risk tolerance, propensity to take risk); group factors (the impact of individual risk tolerances and willingness to manage risk); organizational factors (strategic direction, stated or implied risk tolerance); as well as external factors (elements that affect particular risk decisions or how risk is managed in general). Risk ToleranceAn awareness and understanding of the current risk tolerances of various stakeholders is a key ingredient in establishing the corporate risk profile. The environmental scan will identify stakeholders affected by an organization's decisions and actions, and their degree of comfort with various levels of risk. Understanding the current state of risk tolerance of citizens, parliamentarians, interest groups, suppliers, as well as other government departments will assist in developing a risk profile and making decisions on what risks must be managed, how, and to what extent. It will also help identify the challenges associated with risk consultations and communication. In the Public Service, citizens' needs and expectations are paramount. For example, most citizens would likely have a low risk tolerance for public health and safety issues (injuries, fatalities), or the loss of Canada's international reputation. Other risk tolerances for issues such as project delays and slower service delivery may be less obvious and may require more consultation. In general, there is lower risk tolerance for the unknown, where impacts are new, unobservable or delayed. There are higher risk tolerances where people feel more in control (for example, there is usually a higher risk tolerance for automobile travel than for air travel). Risk tolerance can be determined through consultation with affected parties, or by assessing stakeholders' response or reaction to varying levels of risk exposure. Risk tolerances may change over time as new information and outcomes become available, as societal expectations evolve and as a result of stakeholder engagement on trade-offs. Before developing management strategies, a common approach to the assessment of risk tolerance needs to be understood organization-wide. Determining and communicating an organization's own risk tolerance is also an essential part of managing risk. This process identifies areas where minimal levels of risk are permissible, as well as those that should be managed to higher, yet reasonable levels of risk. Element 2: Establishing an Integrated Risk Management FunctionEstablishing an integrated risk management function means setting up the corporate "infrastructure" for risk management that is designed to enhance understanding and communication of risk issues internally, to provide clear direction and demonstrate senior management support. The corporate risk profile provides the necessary input to establish corporate risk management objectives and strategies. To be effective, risk management needs to be aligned with an organization's overall objectives, corporate focus, strategic direction, operating practices and internal culture. In order to ensure risk management is a consideration in priority setting and revenue allocation, it needs to be integrated within existing governance and decision-making structures at the operational and strategic levels. To ensure that risk management is integrated in a rational, systematic and proactive manner, an organization should seek to achieve three related outcomes:
Strategic Risk Management DirectionThe establishment and communication of the organization's risk management vision, objectives and operating principles are vital to providing overall direction, and ensure the successful integration of the risk management function into the organization. Using these instruments can reinforce the notion that risk management is everyone's business. It is essential that management provides a clear statement of its commitment to risk management and determines the best way to implement risk management in its organization. This includes establishing a corporate focus and communicating internal parameters, priorities, and practices for the implementation of risk management. To reinforce the corporate focus on risk management, organizations may dedicate a small number of resources to provide both advisory and challenge functions, and to specifically integrate these responsibilities into an existing unit (for example, Corporate Planning and Policy, Comptrollership Secretariat, Internal Audit). In establishing the strategic risk management direction, internal and external concerns, perceptions and risk tolerances are taken into account. It is also imperative to identify acceptable risk tolerance levels so those unfavourable outcomes can be remedied promptly and effectively. Clear communication of the organization's strategic direction will help foster the creation and promotion of a supportive corporate risk management culture. Objectives and strategies for risk management are designed to complement the organization's existing vision and goals. In establishing an overall risk management direction, a clear vision for risk management is articulated and supported by policies and operating principles. The policy would guide employees by describing the risk management process, establishing roles and responsibilities, providing methods for managing risk, as well as providing for the evaluation of both the objectives and results of risk management practices. Integrating Risk Management into Decision MakingEffective risk management cannot be practised in isolation, but needs to be built into existing decision-making structures and processes. As risk management is an essential component of good management, integrating the risk management function into existing strategic management and operational processes will ensure that risk management is an integral part of day-to-day activities. In addition, organizations can capitalize on existing capacity and capabilities (e.g., communications, committee structures, existing roles and responsibilities, etc.) While each organization will find its own way to integrate risk management into existing decision-making structures, the following are factors that may be considered:
The integration of risk management into decision-making is supported by a corporate philosophy and culture that encourages everyone to manage risks. This can be accomplished in a number of ways, such as:
Reporting on PerformanceThe development of evaluation and reporting mechanisms for risk management activities provides feedback to management and other interested parties in the organization and government-wide. The results of these activities ensure that integrated risk management is effective in the long term. Some of these activities could fall to functional groups in the organization responsible for review and audit. Responsibility may also be assigned to operational managers and employees to ensure that information affecting risk that is collected as part of local reporting or practices is incorporated into the environmental scanning process. Reporting could take place through normal management channels (performance reporting, ongoing monitoring, appraisal) as part of the advisory and challenge functions associated with risk management. Reporting facilitates learning and improved decision-making by assessing both successes and failures, monitoring the use of resources, and disseminating information on best practices and lessons learned. Organizations should evaluate the effectiveness of their integrated risk management processes on a periodic basis. In collaboration with departments, the Treasury Board of Canada Secretariat will review the effectiveness of the Integrated Risk Management Framework and make the necessary adjustments to ensure sustained progress in building a risk-smart workforce and environment. Building Organizational CapacityBuilding risk management capacity is an ongoing challenge even after integrated risk management has become firmly entrenched. Environmental scanning will continue to identify new areas and activities that require attention, as well as the risk management skills, processes, and practices that need to be developed and strengthened. Organizations need to develop their own capacity strategies based on their specific situation and risk exposure. The implementation of the Integrated Risk Management Framework will be further supported by the Treasury Board of Canada Secretariat, which, through a centre of expertise, will provide overall guidance, advice and share best practices. To build capacity for risk management, there needs to be a focus on two key areas: human resources, and tools and processes at both the corporate and local levels. The risk profile will identify the organization's existing strengths and weaknesses vis-à-vis capacity. Areas that may require attention include: Human Resources
Tools and Processes
Element 3: Practising Integrated Risk ManagementImplementing an integrated risk management approach requires a management decision and sustained commitment, and is designed to contribute to the realization of organizational objectives. Integrated risk management builds on the results of an environmental scan and is supported by appropriate corporate infrastructure. The following outcomes are expected for practising integrated risk management:
A Common ProcessA common, continuous risk management process assists an organization in understanding, managing and communicating risk. Continuous risk management has several steps. Emphasis on various points in the process may vary, as may the type, rigour or extent of actions considered, but the basic steps are similar. In the exhibits that follow, Exhibit 1 illustrates an example of a continuous risk management process that focuses on an integrated approach to risk management, while Exhibit 2 presents a risk management decision-making process in the context of public policy. Exhibit 1: A Common Risk Management Process Internal and external communication and continuous learning improve understanding and skills for risk management practice at all levels of an organization, from corporate through to front-line operations. The process provides common language, guides decision-making at all levels, and allows organizations to tailor their activities at the local level. Documenting the rationale for arriving at decisions strengthens accountability and demonstrates due diligence. The common risk management process and related activities are: Risk Identification1. Identifying Issues, Setting Context
Risk Assessment2. Assessing Key Risk Areas
3. Measuring Likelihood and Impact
4. Ranking Risks
Responding to Risk5. Setting Desired Results
6. Developing Options
7. Selecting a Strategy
8. Implementing the Strategy
Monitoring and Evaluation9. Monitoring, Evaluating and Adjusting
Organizations may vary the basic steps and supporting tasks most suited to achieving common understanding and implementing consistent, efficient and effective risk management. A focused, systematic and integrated approach recognizes that all decisions involve management of risk, whether in routine operations or for major initiatives involving significant resources. It is important that the risk management process be applied at all levels, from the corporate level to programs and major projects to local systems and operations. While the process allows tailoring for different uses, having a consistent approach within an organization assists in aggregating information to deal with risk issues at the corporate level. Exhibit 2: Risk Management in Public Policy: A Decision-Making Process Exhibit 2 presents the model, developed by the PCO-led ADM Working Group on Risk Management, which addresses the issue of risk management in the context of public policy development. This model presents a basis for exploring issues of interest to government policy-makers, and provides a context in which to discuss, examine, and seek out interrelationships between issues associated with public policy decisions in an environment of uncertainty and risk (i.e., a model of public risk management). As in Exhibit 1, this model recognizes six basic steps: identification of the issue; analysis or assessment of the issue; development of options; decision; implementation of the decision; and evaluation and review of the decision. 4 In this model, several key elements were identified as influencing the public policy environment surrounding risk management:
Integrating Results for Risk Management into Practices at all LevelsThe results of risk management are to be integrated both horizontally and vertically into organizational policies, plans and practices. Horizontally, it is important that results be considered in developing organization-wide policies, plans and priorities. Vertically, functional units, such as branches and divisions, need to incorporate these results into programs and major initiatives. In practice, the risk assessment and response to risk would be considered in developing local business plans at the activity, division or regional level. These plans would then be considered at the corporate level, and significant risks (horizontal or high-impact risks) would be incorporated into the appropriate corporate business, functional or operational plan. The responsibility centre providing the advisory and "corporate challenge" functions can add value to this process, since new risks might be identified and new risk management strategies required after the roll-up. There needs to be a synergy between the overall risk management strategy and the local risk management practices of the organization. Each function or activity would have to be examined from three standpoints:
Tools and MethodsAt a technical level, various tools and techniques can be used for managing risk. The following are some examples:
Exhibit 3 provides an example of a risk management model. In this model, one can assess where a particular risk falls in terms of likelihood and impact and establish the organizational strategy/response to manage the risk. Exhibit 3: A Risk Management Model In developing methods to provide guidance on risk management, the different levels of readiness and experience in a department, as well as variations in available resources need to be recognized. Therefore, methods need to be flexible and simple using clear language to ensure open channels of communication. Several practical methods that could be used to provide guidance are:
Communication and ConsultationCommunication of risk and consultation with interested parties are essential to supporting sound risk management decisions. In fact, communication and consultation must be considered at every stage of the risk management process. A fundamental requirement for practising integrated risk management is the development of plans, processes and products through ongoing consultation and communication with stakeholders (both internal and external) who may be involved in or affected by an organization's decisions and actions. Consultation and proactive citizen engagement will assist in bridging gaps between statistical evidence and perceptions of risk. It is also important that risk communication practices anticipate and respond effectively to public concerns and expectations. A citizen's request for information presents an opportunity to communicate about risk and the management of risk. In the public sector context, some high-profile risk issues would benefit from proactively involving parliamentarians in particular forums of discussion thus creating opportunities for exchanging different perspectives. In developing public policy, input from both the empirical and public contexts ensures that a more complete range of information is available, therefore, leading to the development of more relevant and effective public policy options. Internally, risk communication promotes action, continuous learning, innovation and teamwork. It can demonstrate how management of a localized risk contributes to the overall achievement of corporate objectives. Risk communication involves a range of activities, including issue identification and assessment, analysis of the public environment (including stakeholder interests and concerns), development of consultation and communications strategies, message development, working with the media, and monitoring and evaluating the public dialogue. The public sector has the additional responsibility of reporting to and communicating with Parliament. Within the federal Public Service, it is expected that consultation activities, including those related to risk management, will be undertaken in a manner that is consistent with the Government Communications Policy. Element 4: Ensuring Continuous Risk Management LearningContinuous learning is fundamental to more informed and proactive decision-making. It contributes to better risk management, strengthens organizational capacity and facilitates integration of risk management into an organizational structure. To ensure continuous risk management learning, pursue the following outcomes:
Creating a Supportive Work EnvironmentA supportive work environment is a key component of continuous learning. Valuing learning from experience, sharing best practices and lessons learned, and embracing innovation and responsible risk-taking characterize an organization with a supportive work environment. An organization with a supportive work environment would be expected to: Promote learning
Learn from experience
Demonstrate management leadership
Building Learning Plans in PracticesSince continuous learning contributes significantly to increasing capacity to manage risk, the integration of learning plans into all aspects of risk management is fundamental to building capacity and supporting the strategic direction for managing risk. As part of a unit's learning strategy, learning plans provide for the identification of training and development needs of each employee. Effective learning plans, reflecting risk management learning strategies, are linked to both operational and corporate strategies, incorporate opportunities for managers to coach and mentor staff, and address competency gaps (knowledge and skills) for individuals and teams. The inclusion of risk management learning objectives in performance appraisals is a useful approach to support continuous risk management learning. Supporting Continuous Learning and InnovationIn implementing a continuous learning approach to risk management, it is important to recognize that not all risks can be foreseen or totally avoided. Procedures are paramount to ensure due diligence and to maintain public confidence. Goals will not always be met and innovations will not always lead to expected outcomes. However, if risk management actions are informed and lessons are learned, promotion of a continuous learning approach will create incentives for innovation while still respecting organizational risk tolerances. The critical challenge is to show that risk is being well-managed and that accountability is maintained while recognizing that learning from experience is important for progress. In addition to demonstrating accountability, transparency and due diligence, proper documentation may also be used as a learning tool. Practising integrated risk management should support innovation, learning, and continuous improvement at the individual, team and organization level. An organization demonstrates continuous learning with respect to risk management if:
ConclusionThe Integrated Risk Management Framework advances a more systematic and integrated approach for risk management. By focusing on the importance of risk communication and risk tolerance, it looks outside the organization for the views of Canadians. Internally, it emphasizes the importance of people and leadership and the need for departments and agencies to more clearly define their roles. The Framework provides a tool that helps organizations communicate a vision and objectives for management of risk based on government values and priorities, lessons learned, best practices and consultation with stakeholders. The Framework is a fundamental part of the federal management agenda and Modern Comptrollership. It is designed to support the optimization of resource allocation and responsible spending, paramount for achieving results. It also builds on public sector values, knowledge management and continuous learning for innovation. The Integrated Risk Management Framework is the first step in establishing the foundation for more strategic and corporate integrated risk management in departments and in government. In the future, the Framework will be supported by tools and guidance documents as well as complemented by other risk management initiatives. The Treasury Board of Canada Secretariat intends to work closely with departments and agencies in implementing the Integrated Risk Management Framework and in tracking progress toward building a risk-smart workforce and environment in the Public Service. Appendix: Shared Leadership--Suggested Roles and ResponsibilitiesIn moving toward an integrated risk management function, everyone has a role to play. Combining shared leadership with a team approach will help contribute to the success of integrated risk management throughout the organization. Suggested roles and responsibilities that could be considered by the different parties involved in integrated risk management are outlined below. Treasury Board of Canada Secretariat
Deputy Heads or Equivalent
Senior Management
Managers
Functional Advisors and Specialists
Review, Internal Audit
All Public Servants
1. Australian and New Zealand Public Sector Guidelines for Managing Risk (HB 143:1999) defines risk as the "chance of something happening that will have an impact on objectives. It is measured in terms of consequences and likelihood." The Canadian Institute of Chartered Accountants defines risk as "the possibility that one or more individuals or organizations will experience adverse consequences from an event or circumstance." The Canadian Standards Association Risk Management: Guidelines for Decision-Makers (CAN/CSA -Q850-97) defines risk as "the chance of injury or loss as defined as a measure of the probability and severity of an adverse effect to health, property, the environment or other things of value." The November 1, 2000, working draft of the International Organization for Standardization (ISO) Risk Management Terminology defines risk as the "combination of the probability of an event and its consequences. Note 1- In some situations, risk is a deviation from the expected." [ Return ] 2. Risk Management for Canada and Canadians: Report of the ADM Working Group on Risk Management (PCO). [ Return ] 3. This is a general definition and while it includes the assessment of risk as a function of the decision -making process, it is not intended to prescribe a system for prioritizing specific risks. Also of note is that in many international fora, risk analysis is used as the more comprehensive label, referring to an overall process for dealing with risk, including identification, assessment and implementation of measures. The use of management rather than analysis is intended to reflect the general applicability of the concepts to be developed, not only in technical or science-based sectors, but also in other public policy areas. [ Return ] 4. For further details, refer to the PCO report, Risk Management for Canada and Canadians: Report of the ADM Working Group on Risk Management (March 2000). [ Return ]
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