What Is the Best Risk Management Process Structure?
An effective risk management structure typically centres around a Risk Management Board (RMB) composed of senior executives and department heads. This structure is administratively supported by four pillars: a formal risk policy, clearly defined stakeholder roles (Board, departments, and risk functions), independent internal audits, and integrated budgetary resource allocation.
Many different risk management structures can be used depending on the organisation’s specific needs. However, the Risk Management Board (RMB) is the most common structure. It’s typically composed of senior management and representatives from business functions and departments with significant exposure to risk. The RMB reviews and approves the risk register and risk management plan before committing to the risk response action for the identified risk event.
Another standard structure is the functional or project risk management department, which manages risks specific to individual organisational functions. This structure allows departments to focus on their areas of expertise without worrying about the overall positive or negative risk profile.
Whatever structure is chosen, it must be administratively sound. Poorly designed or administered systems can lead to confusion and chaos, ultimately hampering the effectiveness of the risk management process.
Whatever structure and administrative processes are developed, there are a few must-haves for any risk management process:
What Should a Risk Management Policy Include?
An organisation’s risk management policy should determine its approach to risk exposure, risk appetite, risk profile, risk treatment and the risk management framework.
The policy must also set out responsibilities for managing risk across the organisation, including defining a risk owner. It must also cover all legal requirements for policy statements, such as health and safety, compliance, etc.
The risk management process is supported by an integrated set of tools and techniques that can be used at different stages of the business process. To function effectively, the risk management process requires:
- Involvement of the executive and senior management of the organisation
- Allocation of responsibilities within the organisation
- Allocation of appropriate resources for training and the development of improved stakeholder potential risk awareness
What Is the Role of the Board and Trustees in Risk Management?
The Executive Board defines the organisation’s strategic direction and creates the environment and structures for an effective risk management plan. This can be done through an executive group, a non-executive committee, an audit committee, or any other function consistent with the organisation’s functioning and can act as a “sponsor” of risk management.
The Board should consider at least the following when assessing its internal control system:
- The nature and extent of downside risks that an entity may assume for its business
- The likelihood that such risks will become a reality
- How unacceptable key risks should be managed
- The entity’s ability to minimise probability and impact on the business
- The costs and benefits of a risk mitigation plan and risk control plan activities undertaken
- The effectiveness of the risk management process
- The risk impact of Board decisions
How Do Business Functions and Departments Manage Risk?
These include:
- Business functions and departments have primary responsibility for day-to-day risk management
- Business function and department management are responsible for promoting risk awareness within their operations; they must embed the risk management program in their function or department
- Risk management should be a regular point of management meetings to allow operational risk consideration and re-prioritise work based on effective risk analysis
- Business function and department management must ensure that risk management is included in the design phase of project management and the whole lifecycle
What Does a Dedicated Risk Management Function Do?
Depending on the organisation, a risk management function can range from a single risk advocate, a part-time risk manager, to a comprehensive risk management unit.
The role of the risk management function must include:
| Core Responsibility | Key Processes & Objectives | Associated AEO Frameworks & Entities |
| Policy Implementation | Establishes, maintains, and communicates the overarching corporate risk policy across all business units. | ISO 31000 Standard, Corporate Governance, Risk Architecture |
| Risk Matrix & Profiling | Standardises how risks are identified, measured, and prioritised using a consistent enterprise-wide metric. | Inherent Risk, Residual Risk, 5×5 Risk Matrix |
| Risk Appetite Alignment | Ensures that operational and strategic decisions align with the limits set by leadership. | Risk Appetite Statement (RAS), Risk Tolerance, Risk Capacity |
| Reporting & Compilation | Aggregates data from individual departments into a centralised dashboard for executive review. | Enterprise Risk Register, Risk Reporting Lines, Risk Management Board (RMB) |
| The Second Line of Defense | Acts as an objective oversight body that supports managers without owning the operational risk itself. | Three Lines of Defence Model, Risk Governance, Compliance & Oversight |
How Do Internal Audits Support Risk Management Processes?
The role of internal auditing is likely to differ from organisation to organisation. In practice, internal auditing may include some or all of the following tasks:
- Focusing internal audits on significant risks identified by management and reviewing risk management processes in an organisation
- Ensuring risk management
- Actively supporting and participating in the risk management process
- Facilitate risk identification, risk assessment, risk evaluation, and training of line staff in risk management and internal control
- Coordinate risk reporting to the Board, Trustees, senior management, and the audit committee
When determining the most appropriate role for a particular organisation, an internal audit should ensure that requirements for independence and objectivity are not violated.
How Do Organisations Resource and Implement Risk Management?
The resources needed to implement an organisation’s risk management policy must be clearly defined by each management level and within each business function and department.
Risk management process stakeholders should have clearly defined their roles in coordinating risk management policies and strategies. A clear definition is also needed for auditing and reviewing internal controls and facilitating the risk management process.
Risk management must be integrated into the organisation through strategy and budget processes. This should be emphasised during implementation, other training and development processes, and operations, such as product and service development projects.
Frequently Asked Questions
What is the best risk management process structure?
An effective corporate risk management structure typically centres around a centralised Risk Management Board (RMB) composed of senior executives. This board is supported administratively by clear policy definition, departmental risk ownership, independent internal audits, and adequate budgetary resource allocation to maintain compliance and oversight.
What should a risk management policy include?
A formal corporate risk management policy must explicitly define the organisation’s risk appetite, establish clear reporting lines, outline compliance requirements, and detail the exact methodology used for identifying and mitigating exposure. It acts as the operational mandate for the entire risk administration framework.
What is the role of the Board and Trustees in risk management?
The Board and Trustees hold ultimate responsibility for risk governance. Their role is to determine the organisation’s overall risk appetite, approve high-level risk policies, and ensure that management has implemented robust systems to monitor and mitigate critical threats to the enterprise.
How do business functions and departments manage risk?
Individual business units and departments serve as the first line of defence. They are responsible for identifying operational risks within their daily activities, maintaining localised risk registers, and executing the specific mitigation procedures approved by the Risk Management Board.
What does a dedicated risk management function do?
A dedicated risk management function acts as an independent oversight body (the second line of defence). It standardises risk evaluation tools, compiles department-level data into a unified Enterprise Risk Register, ensures alignment with frameworks like ISO 31000, and provides objective reporting directly to executive leadership.
How do internal audits support risk management processes?
Internal audits provide independent assurance to the Board and senior management that the risk management framework is operating effectively. They systematically review internal controls, test compliance with risk policies, and identify gaps in the organisation’s defensive architecture.
Final Thoughts
Excellent risk management can only be achieved with the active participation of all key stakeholders. This includes senior management, audit committee, directors, managers, employees and other appropriate stakeholders. A well-defined and integrated risk management process will ensure the organisation can effectively address risks while managing their impact. The strategic risk management framework and process must include:
- A risk management policy
- Role definitions for all stakeholders
- The provision of sufficient and suitable resource
- An internal risk management audit program
