There are several organizations in the world that follow their very own risk management practices. However, there are some practices that are better than others. An international body has been formed to collate and codify such risk management practices. This international body is called the International Risk Governance Committee (IRGC).
The International Risk Governance Committee (IRGC) has extensively studied the risk management practices across various organizations. In the end, they have come up with a framework. In this article, we will have a closer look at what the International Risk Governance Committee (IRGC) framework is and how it helps in improving risk governance.
What is the International Risk Governance Committee (IRGC) Framework?
The International Risk Governance Committee (IRGC) framework is a framework that advocates the use of scientific methods in the field of risk governance and risk management. This framework is different from other approaches to risk management because it looks into the risk management problem from various points of view. As a result, people belonging to different functions within the organization as well as external stakeholders are more comfortable when the International Risk Governance Committee (IRGC) framework is used in order to manage risks.
Phases of the International Risk Governance Committee (IRGC) Model
The International Risk Governance Committee (IRGC) is made up of five different phases. The details of each of the phases have been mentioned below:
- Pre-Assessment: The International Risk Governance Committee (IRGC) model makes it clear that risk governance does not start with risk management. Instead, it starts much earlier at the stage of risk assessment.
The defining feature of risk assessment is that here the problem is not considered only from the management’s point of view. Instead, users of this framework are encouraged to come up with different points of view which belong to the different stakeholders. This is what makes the International Risk Governance Committee (IRGC) framework pluralistic and multidisciplinary in nature.
- Appraisal: It needs to be understood that the International Risk Governance Committee (IRGC) framework distinguishes between the appraisal of risks i.e. understanding its nature as well as the management of risks.
The second phase comprises the appraisal process and is performed by people who are different from the ones performing step 4. In this step, the company performs a risk appraisal as well as a concern appraisal.
Risk appraisal means that the factual and measurable characteristics of the risk are measured and recorded. The distribution of these various measurements is also created in order to have a better understanding of the probable outcomes. On the other hand, a concern appraisal takes into account intangible and softer aspects like the opinion of various stakeholders about these risks.
The International Risk Governance Committee (IRGC) framework recommends a thorough investigation into the various consequences that the stakeholders associated with any risk. A thorough risk-benefit analysis must be done before taking any decision.
As a part of the concern appraisal, the risk must be viewed from a social, economic as well as legal point of view. Another important feature of the International Risk Governance Committee (IRGC) model is that it differentiates between the source of the risk and the impact made by it.
- Characterization and Evaluation: In the previous step, a reasonable amount of data pertaining to the risk has been collected. The next logical step is to characterize the risks into different types. Characterization helps reduce the number of groupings which makes the risk manageable when it comes to designing risk management strategies. Risks are often characterized based on two dimensions viz. certainty and complexity.
As a part of this step, the organization has to evaluate the risk and rate it as either acceptable, tolerable, or intolerable. Once again, this must not be done only from the point of view of the management. The point of view of various stakeholders must be taken into account before taking any decision.
- Management: The next step is the management of risk. The International Risk Governance Committee (IRGC) framework necessitates that the management of risks is done by a different person as compared to the person doing the appraisal.
There are various steps that need to be taken to manage risk. For instance, a wide variety of risk management options is generated. These options are then evaluated and chosen as per the benefits that they provide. Each option is viewed as a trade-off. The International Risk Governance Committee (IRGC) encourages thinking about how the risk management options will affect the various stakeholders.
- Cross-Cutting Aspects: The cross-cutting aspects are mentioned as phase five in the model. However, in reality, they cut across the first four stages in the model. There are three cross-cutting aspects commonly mentioned viz. effective communication, stakeholder engagement as well as understanding the broader societal context of the risk management decision.
Benefits of International Risk Governance Committee (IRGC) Framework
The International Risk Governance Committee (IRGC) framework is so popular because it provides certain benefits. Some of these benefits are as follows:
- The framework is designed to help detect the shortcomings of the current risk management system. The framework also provides guidance that will ultimately lead to their remediation
- The framework helps decision-makers clarify the assumptions which underlie the risk management model. This clarification leads to more transparency and is in the interest of all stakeholders
- The framework makes a conscious attempt to uncover the unanticipated results of the risk management process. It encourages viewing every decision as a trade-off and encourages being mindful of what is being given up while analyzing the gain
- Many organizations believe that this framework has played a pivotal role in helping them effectively manage complex risks particularly when the situation is uncertain or ambiguous.
