With risk quickly becoming the new benchmark for measuring organizational compliance, life science companies and other regulated manufacturers are placing greater emphasis on their risk assessment programs. MasterControl Risk™, an integrated part of the MasterControl enterprise quality management software suite, is designed to automate and streamline the entire risk process, from hazard identification to solution implementation, and to ease the major issues and challenges associated with determining and managing risk. It does this by enabling an organization to glean a complete picture of its entire risk landscape—across product lines, business processes, and business units. This in turn allows the company to determine hazards, derive risk levels, and implement the appropriate risk controls in every department throughout the organization. Having an effective risk assessment program, as well as a robust risk management tool, is critical to surviving in today’s risk-based regulatory landscape.
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Before a company can develop a successful risk assessment program, it must understand the concept of risk and the terminology frequently used when discussing risk assessment.
Hazard: A hazard is something with the potential to cause harm to life, health, property, or environment. In the quality industry, a hazard is often referred to as an “undesirable event.” Hazards are an inevitable part of doing business, so a company must determine what its individual hazards are by looking at its own historical data as well industry data. Once an organization identifies its hazards, it will need to measure those hazards using risk. Hazard identification is the first step to developing an effective risk assessment program.
Risk: Risk is the likelihood that a particular hazard will occur, and the magnitude of consequences associated with that hazard. The terms risk and hazard are often confused, but it is important to understand the distinction.
Risk Assessment: A risk assessment is the process of evaluating and ranking the risk resulting from a hazard. A risk is typically evaluated for severity and frequency, and then assigned a “risk level.” A risk matrix is commonly used to determine risk levels (e.g., high, medium, low), and is a critical component of the risk assessment program. After the risk level has been determined, it’s important to determine whether the risk is acceptable or not, a determination which is not always clear-cut. For example, a “low” risk does not always imply acceptable risk, particularly when the consequences are severe (e.g., death).
Risk Management: Risk management is the process of weighing policy alternatives with all interested parties while taking into consideration risk assessment results, as well as other risk-related factors (e.g., control activities and monitoring). The goal of risk management is not only to identify risk, but to implement the steps necessary to manage and reduce the risk to an acceptable level. Risk assessment programs form the foundation of effective risk management.
Effective risk assessment is increasingly important to the success of any business but even more so for life science organizations and other highly regulated companies. Increased regulatory requirements, as well as increased scrutiny from shareholders, have forced companies to address the efficacy of its risk-related efforts, particularly its risk assessment programs. Done well, risk assessment provides a method for distinguishing risks that represent opportunities (yes, risk can sometimes be a good thing) from risks that represent pitfalls. These risks can either be internal (e.g., people, processes) or external (e.g., the economy, regulatory landscape) and either retrospective or in the future. When applied consistently, an effective risk assessment program empowers management and other key decision makers to exploit risks that might be good for business, while maintaining the appropriate controls to avoid regulatory noncompliance.
Business Objectives—An organization’s business objectives will provide the foundation for measuring the impact and probability of risk ratings and determining the scope of the risk assessment. Whether broad (e.g., organization-wide strategic or reporting requirements) or narrow (e.g., relating to a particular product or function such as supply chain), a risk assessment program should begin and conclude with these objectives in mind. Once the scope is defined, risks are rated in terms of impact and likelihood, and then compiled in a risk profile which is viewed in relation to the company’s overall risk tolerance.
Holistic Approach—Risk assessments can be conducted at various levels of an organization (e.g., financial risk assessment, credit risk assessment, compliance risk assessment, etc.,); therefore, governance over the risk assessment process should foster a holistic approach and paint a complete picture of the organization’s overall risk appetite and tolerance levels.
Accountability—In order to ensure that the necessary resources are provided and requisite actions are taken, the risk assessment program should clearly define who is accountable for the oversight of the organization’s risk assessment process.
Key Risk Indicators (KDIs)—Key risk indicators, often referred to as KDIs, are used to measure how risky a particular activity is and to warn of a potential event. Capturing KDIs enhance a company’s ability to anticipate risks, as well as opportunities, before they occur. KDIs should be included in the risk assessment program and defined in relation to company objectives.
When done correctly, risk assessment enables a company to identify and address potential risk factors to both avoid and capitalize on risk events. However, the challenges to conducting successful risk assessments and developing successful risk assessment programs are numerous. Fortunately, Master Control’s enterprise risk management solution, MasterControl Risk™, was designed to help regulated companies overcome these challenges and obtain measureable success in today’s ever-evolving risk landscape. Common challenges include the following:
To get more detailed information on MasterControl’s Risk Assessment Program, feel free to contact MasterControl representative.