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How is Risk Management Policy formulated ??


How is Risk Management Policy formulated ??, Risk management under companies act. My this article is all about how the changes have been made from Companies Act, 2013 from Companies Act, 1956 in formulating the risk management policy. In Companies Act, 1956 it was not at all compulsory for any company to formulate and disclose the risk management policy. But from introduction of Companies Act,2013 it has become mandatory for companies to disclose and formulate the risk management policy adopted by the management for the risk associated with the business they are running. In addition also, board and the audit committee have been given some responsibilities to check the proper implementation of the same and if some errors than rectify it.

What is Risk Management Policy ??

The main question arises in our minds that what does risk management means. The simple answer to it is finding the threats and getting solutions for the same. The detailed meaning of risk management is checking the operations of the enterprise by finding the relevant threats to the enterprise and the probability of occurrence and to take appropriate steps to get out of that threat in the most profitable manner as the management thinks fit.

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Risk Management Procedure:

Now the question comes that how does the process of risk happens in the enterprise. The simple answer to it is that it works in a proper format and if enterprise applies this format to there framework than it would be easy for them to take out of the worse situations. The majority things that the enterprise should do is to identify the risk that may affect there business as a whole, reasons behind the same, justification behind the same, implementing the policy, reasons for deviations, solutions or options for making it correct. The main steps involved in risk management policy are:

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Risk Identification:

The first and the foremost step that should be done is to identify the chances of occurrence of risk and the effect of the same risk on the organisation as a whole. If the risk identified is dangerous for the organization than take measurable steps and make assessment of the effect of the risks.

Risk Assessment & Implementation:

This step involves the assessment of the risk identified in the above step and the relevance in accordance with the current organisation situation prevailing in the organization and make relevant steps to remove that threat and make it a strength of the organisation.

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Risk Monitoring and control:

The next and the final step involves the checking of the risk assessed and the implementation of the risk so assessed and variances if any found than the solutions to come out with should be determined and given a word for.

Risk Management Policy:

The question that now arises that how to formulate a risk management policy, the answer to it is elaborated here:

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Firstly it is very much required that the responsibilities and the roles of all the persons in the organisation should be given. Secondly it should be clear that who would be implementing the policy and who should be monitoring the same. Thirdly evaluation of the policy so adopted should be checked regularly. Fourthly, management should report to the board of directors in case of worse situations. Must check whether the company is working accordance with the relevant law in force or not. If not make the relevant changes so that it can work according to the needs of the law. Lastly according to Section 134, a statement indicating the development and implementation of risk management policy of the company should be included in which it should be mentioned that in which cases the risk is involved in the company which may threaten the existence of the organisation.

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About Yash Shah

Yash Shah is passionate article writer and has written more than 100 articles in the field of Finance, Insurance, Stock Market, Company Law, Auditing, Taxation and many others. In case of any queries or suggestions, you can reach the author @ [email protected], you can also catch him on facebook @ yashshah299

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