The definition of risk, as defined in ISO 3100, is that “risk is the effect of uncertainty on objectives.” Organizations need a clear understanding of what process objectives are and how business processes function to clearly identify, assess and monitor risk to those objectives within business processes.
Assessment of risks
A risk assessment is a process of identifying, comprehend, and evaluating potential threats in the organization. Risk is inherent within every business process and this requires that it be managed within every business process. This starts with understanding the most critical processes to your organization and their objectives by running a business process risk analysis and then prioritizing them to identify risk of uncertainty in achieving those process objectives.
Identification of risks
Identify risks in business processes, and especially the most critical processes, is key as from there, the organization can accept the risk, avoid the risk, transfer the risk (e.g., hedging, insurance), or it can control the risk by implementing a solid control framework to avoid process failures.
Organizations need a capability to document business processes and identify and analyze emerging or potential risks within them. It is also critical to map process inter-connectivity to other operations, systems, and processes scattered throughout the business to measure potential propagation and avoid domino effect.
Business process in the context of risk in today's world
Nowadays, processes and operations are:
Scattered throughout the extended enterprise of traditional business supported by a vast network of systems, people, third-party relationships, and distributed processes. Business processes move across third-party connections in complex process flows, data sharing, and transactions.
Changing and constantly evolving. Business operations, processes, and relationships are in a constant state of change as the organization attempts to remain on course with its overall strategy. They simultaneously have to remain in tune with changing risks and regulations around the world while avoiding process failures. Managing risks requires a current understanding of risk in business processes.
Disrupted by large volumes of data and distributed operations that prevent the organization from being agile when it is most important. Organizations have to be agile and this requires 360° contextual awareness of business processes that are adapting to a disrupted environment.
An organization needs to be able to visualize where it currently sits and where it should be in order to effectively manage this complexity and change. This, of course, can be incredibly difficult to predict accurately. Thankfully, business process modeling gives the organization a framework to assist in documenting and mapping current processes for analysis and improvements. It also helps the business in navigating the chaos of distributed, dynamic, and disrupted business.
How business process modeling benefits risk management?
The absence of a system to identify and analyze business process risks is a major weakness for an organization's risk management and compliance departments. A business process modeling approach should be implemented to document process-related risks and their relationships with the organization’s goals, other risks, processes, and overall operations.
Business process risk mapping
Business process modeling helps the organization in visually documenting processes and maps out how processes are to function and be controlled to mitigate risk and provide reliable achievement of process objectives within the organization. This offers a baseline to make future improvements by providing process modelers with a data flow diagram that displays each process step involved in the process design.
Business process modeling allows the company to visually represent the vast web of interconnected processes, activities, transactions, behavior, and relationships throughout the business using a graphical representation. This gives the organization a greater opportunity to spot areas where efficiency can be improved, and where risk can be mitigated through process controls down to the actual process step. Business process modeling integrates the practices of process improvement, process mapping, process simulation, and process analysis. This clarifies and defines the current processes in use and represents the potential for new processes.
Business Process Risk Management: an integrated approach
Risk Management and Business Process Management (BPM) are traditionally thought of as separate and distinct disciplines. But BPM has risen as an effective tool for understanding and controlling inherent risks within business processes
Ironically, risk management traditionally has had little to no focus on improving business processes – where the event actually occurred and was produced. By integrating business process modeling with risk management activities to conduct business process risk assessment, the picture of the connectivity of risk within each process, and its impact on operational workflows as a result begin to clear up.
This leaves the organization with a need to assimilate and integrate the best features of risk management and business process modeling in an integrated and symbiotic framework. The objective is that emerging risk events and their recovery and mitigation plans are embedded directly into business process model limiting process failures. They can then be leveraged by managers as a tool for managing business change using a business process risk analysis.
By integrating the features of BPM in traditional risk management practices, the organization is able to implement a more effective business process and risk management model for the enterprise as a whole. This integration allows the organization to understand emerging risks. It is also the perfect answer for an organization willing to revamp their business processes in order to become more effective, efficient, and agile.