“Risk management framework”
A risk management framework (RMF) is the structured process used to identify potential threats to an organisation and to define the strategy for eliminating or minimising the impact of these risks, as well as the mechanisms to effectively monitor and evaluate this strategy.
Risk management in corporate environments
Risk management frameworks are often used by international businesses to define plausible FX risk management strategies. They provide a good springboard to analyse challenges, define actions and evaluate the results of the plan.
The National Institute for Standards and Technology’s Guide for Applying the Risk Management Framework to Federal Information Systems breaks down the RMF implementation process into six stages:
Categorise the information by its potential impact on the organisation.
Select security controls. Find out the most appropriate control systems for the needs of the organisation and the nature of the potential risks.
Implement security controls and keep a record of how the controls are used in the context of the information system and the general risk management approach.
Assess the security controls using objective, factual measuring systems to determine their effectiveness against the pre-defined objectives.
Authorise operations based on the information gathered, the objectives and the degree of risk that the company is able to assume.
Monitor the security controls and their effectiveness on an ongoing basis, documenting changes, flaws, potential improvements and the overall state of the risk management programme to report to the management board.
Companies with simple FX risk schemes or only marginal activity in foreign currencies might be able to implement this framework manually. In many cases, however, it makes more sense for companies to use solutions like Dynamic Hedging to automate the monitoring of the FX market and the application of security controls in order to guarantee reliable and efficient FX risk management plans.