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Asset risk management is essentially a fusion of asset management and risk management. A risk-based approach to asset management enables companies to look at business value through the lens of residual and potential risks in order to make better business decisions.
Companies that have a lot of assets have to account for how those assets break down and age and manage those risks accordingly. Asset risk management is also critical to compliance and to avoid running afoul of industry laws and regulators.
Without a firm grasp on both assets and risks, companies can make unfounded decisions that harm the business. Since it’s impossible to completely avoid all risks due to practical limitations, businesses must find intelligent ways to accept some level of risk. Asset risk management provides visibility into financial and other constraints so that risks can be clearly defined and assessed to support informed decisions.
What Does Asset Risk Management Look Like in Action?
Asset risk managers must look at the organization’s biggest asset-related risks and the potential consequences. This information enables sufficient planning for risk events and their potential social, environmental, reputational, legal, and financial consequences.
While asset management and risk management have often been seen as two separate functions, merging the two has become essential. In many cases, risk management is already a part of the asset management function.
Asset risk management takes into account assets, asset systems, asset portfolios, and the overall business, then views these against acquisition risks, disposal risks, operational risks, asset criticality, and spares criticality. These considerations are important to look at before making asset management decisions like maintenance, capital investments, modifications, and outsourcing.
Asset risk management should include a top-down approach to assess for possible major disasters (things like earthquakes, major weather systems, etc.). This should include potential threats that could broadly impact the business. Businesses should also include a bottom-up approach that looks at day-to-day issues related to business operations that could signal future potential threats. Not every issue will correlate to a concrete risk, so it’s important to have a formula in place for identifying true risks.
By creating a risk management framework, asset managers can successfully manage risk across all stakeholders. Organizations can tailor a risk process for each stakeholder and context according to asset risk scope.
An asset risk management framework should include:
Risk process – a system consisting of templates and tools based on the ISO 31000 standard that helps to assess risks and establishes risk context and treatment. This includes guidance on monitoring, reviewing, and communicating risks.
Risk registers – tools to identify, analyze, and evaluate both business- and asset-related risks. A register can link vulnerabilities and threats to assets and assign preventive and corrective actions for each risk.
Risk treatment cycle – decision logic that aids in choosing the right risk treatment options based on tolerance of risk levels.
Risk monitoring process – a standardized process to monitor and review risk registers.
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