The ISO 31000 Risk Management framework is an international standard that provides organizations with guidelines and principles for risk management. The standard was developed by the International Organization for Standardization (ISO).
Regulatory compliance initiatives are usually specific to a particular country and apply to certain-sized businesses or companies in specific industries. However, ISO 31000 is designed to be used in organizations of any size. Its concepts work equally well in the public and the private sector, or in large and small businesses and nonprofit organizations.
ISO 31000 provides a universal standard for practitioners and companies employing risk management practices. With this, organizations can increase the odds of identifying risks and properly plan to allocate resources to mitigate them.
Risk management's goal as a process is to identify, assess and control potential threats to an organization's capital, earnings and operations. A successful risk management framework helps an organization consider the full range of risks it faces while also examining the relationship between different risks and their potential effects.
These risks could stem from a variety of sources, such as financial uncertainties, legal liabilities, technology issues, strategic management errors, accidents and natural disasters.
ISO 31000 provides a set of principles and guidelines for designing and implementing a risk management framework. The standard enables organizations to apply risk management to all strategic, management and operational tasks, as well as to projects, functions and processes.
ISO 31000:2018 is the most recent version of the standard -- it is reviewed every five years. Other risk management standards also exist, including the ISO IEC 31010 standard for risk management by the ISO and the International Electrotechnical Commission.
What is the purpose of ISO 31000?
Risk management is important in any organization, as it provides a process for identifying, assessing and controlling threats that an organization might face. These threats could arise from potential cybersecurity threats and various other internal and external factors that pose a risk to business operations.
ISO 31000 provides a framework for managing and monitoring risk in any organization. The framework covers different types of risks, including strategic, cybersecurity, financial, compliance and operational risks. It's meant to help organizations integrate risk management into their overall processes using a consistent and structured approach.
What is the scope of ISO 31000?
ISO 31000 provides a set of guidelines for managing different types of risks an organization could face. As such, the framework is designed to be broad and flexible, enabling organizations of various sizes, sectors and industries to adopt it. Organizations that adopt ISO 31000 can use it to fit specific contexts and risk appetites.
ISO 31000 is an international standard and is a benchmark for creating a structured approach to risk management. It is limited, however, in that it is not a certifiable standard. ISO 31000 is a guidance standard, and not a requirements one, meaning that organizations can't be officially certified or audited for compliance.
ISO 31000 framework and guidelines
The ISO 31000 framework might be structured differently depending on the organization and its decision on how to implement the standard. For example, an organization can follow ISO 31000 using the following six guidelines:
- Scope. The purpose of the implementation is to address different risks in an organization.
- Normative references. Other documents needed for implementation.
- Terms and definitions. Standardized meanings for commonly used terms.
- Principles. The core values that drive the implementation.
- Framework. How risk management is designed, implemented and improved in the organization.
- Process. The detailed steps for assessing, communicating and treating risks.
The risk management framework can also be divided into the following distinct areas:
- Leadership. Leaders within the organization must take the initiative to ensure that ISO 31000 is adopted and applied in a way that aligns with the organization's culture and business objectives.
- Integration. While it's important to integrate risk mitigation into as many organizational processes as possible, it's also important not to cause operational bottlenecks or hinder the performance of core business processes.
- Design. Organizations need to design a risk management strategy based on their needs.
- Implementation. The implementation process integrates the organization's risk management design into business processes. Implementation is usually a formal process with stated objectives, deadlines and reporting requirements.
- Evaluation. Evaluation assesses the design to determine what is working and what might need to be refined.
- Improvement. Organizations should continuously look for ways to improve their ISO 31000 implementation.
ISO 31000's risk management principles
ISO 31000 seeks to help organizations take a methodical approach to risk management by doing the following three key things:
- Identifying risks.
- Evaluating the probability of an event tied to an identified risk occurring.
- Determining the severity of the problems caused by the event occurring.
As such, ISO 31000 doesn't seek to eliminate risks, as the total removal of all risks is impossible. Instead, it's meant to help organizations identify their risks and establish a business strategy for mitigating or reducing risks where appropriate.
The following eight core ISO 31000 principles are the foundation for establishing a risk management framework:
- Inclusive. For efforts to be successful, key stakeholders must be involved and their knowledge and views must be considered. Risk management should also be transparent, easy to understand and not include confusing jargon.
- Dynamic. Organizations change over time. As such, the risk sources that are relevant to an organization today might change tomorrow. Organizations must perform ongoing risk analysis if their risk reduction efforts are to continue to work.
- Best available information. Risk mitigation efforts must be based on the best and most current information available to stakeholders. However, organizations must also acknowledge that they will never have all of the information needed and that unanticipated risks will always exist.
- Human and cultural factors. Human behavior and culture influence risk management. The list of identified risks should include those related to human error or to the organization's unique culture.
- Continual improvement. Long-term adherence to ISO 31000 means adopting the principles of continuous improvement to ensure that the organization's risk mitigation efforts improve over time.
- Integrated. The concepts of risk mitigation and identification should be integrated into all business processes.
- Structured and comprehensive. Organizations should create a comprehensive risk mitigation strategy that addresses all known risks.
- Customized. Because every organization is unique, the concepts of ISO 31000 should be customized to help the organization achieve its objectives.
Benefits and challenges of ISO 31000 standard
There are several benefits associated with adopting the ISO 31000 standard, including the following:
- Effectiveness. ISO 31000 is an internationally recognized standard used by countless organizations, which means it has been thoroughly vetted and proven to be effective.
- Standardizes risk management. When properly implemented, ISO 31000 acts as a template to help organizations identify key risk drivers. It establishes risk criteria and risk treatments in a standardized way.
- Creates a culture of risk mitigation. By incorporating risk mitigation into nearly all business processes, employees become used to the idea of identifying and potentially mitigating risks.
- Increases the organization's profitability. Mitigating unnecessary risks also reduces the likelihood of financial losses stemming from events tied to that risk.
- Utilizes what is already in place. ISO 31000 is just one of many ISO standards. The various standards are designed to work together, which means that organizations should be able to incorporate the ISO 31000 strategy within their existing management systems without much additional work.
- Compels an organization to be more preemptive. A good ISO 31000 implementation can help an organization shift from reactive to proactive risk mitigation.
- Helps the organization acquire funding more easily. Banks and investors tend to be risk-averse. If an investor is convinced that an organization is serious about identifying and mitigating risks, it might be more inclined to approve an investment.
Although there are clear advantages to adopting ISO 31000, there are also some challenges that must be considered, such as the following:
- Adherence requires a continuous effort. Implementing ISO 31000 requires time and expertise. If an organization fails to incorporate ISO 31000 concepts into its business processes, the risk mitigation plan that it creates will quickly become outdated and likely be ignored by employees.
- Potential for a false sense of security. Even with an effective risk mitigation plan in place, organizations must remember that there will always be unidentified risks.
- Organizations can become risk-averse. Risk aversion can make it difficult for an organization to capitalize on new opportunities.
How to effectively implement ISO 31000
Each organization will need to take a unique approach to ISO 31000, as every organization is different. Even so, ISO outlines the following three key steps for getting started:
- Be aware of objectives. An organization's risk mitigation strategy should align with its business objectives, not hinder them.
- Assess existing governance. Larger organizations likely already have a governance structure in place, which can be useful in formulating roles and procedures related to ISO 31000.
- Consider the level of commitment. Prior to implementing ISO 31000, organizations should consider the resources they are willing to invest in their risk mitigation efforts.
The following process steps in the ISO 31000 guidelines can be done in sequence, and should also be repeated consistently:
- Communication and consultation. This step aims to increase awareness and understanding among stakeholders while also gathering input and information to aid in making informed decisions. It should take place throughout all steps of the implementation process.
- Scope, context and criteria. The goal of these three steps is to customize ISO 31000 to the company's risk management needs. Organizations should be aware of the breadth of implementing risk management and understand the company's internal and external environment. Finally, the organization should establish criteria based on company priorities, objectives and policies. The criteria should be reevaluated throughout the implementation process and amended if necessary.
- Risk assessment. This step is made up of the following three separate processes:
- Risk identification. The goal is to find and define risks that could harm or hinder a company's business objectives.
- Risk analysis. The goal is to evaluate and comprehend any risks and their features, including the risk level, complexity, sources, probability, circumstances and effective controls.
- Risk evaluation. The goal is to compare the risk analysis to the risk criteria to determine where action is needed to support those decisions.
- Risk treatment. The purpose of this step is to choose and apply risk management options.
- Monitoring and review. This step should take place during all stages of the implementation process. The goal is to assess the effectiveness of the implementation process and find any room for improvement.
- Recording and reporting. This step aims to document the implementation process and communicate activities and outcomes to the organization.
While ISO 31000 can address cybersecurity risks, there are many other cybersecurity risk management frameworks out there. Learn more about ISO 31000, along with ISO 27001, NIST CSF and COBIT.