Integrating risk management into the business planning process and cycle is also an important component of good risk management and ensures that the organisation is able to cope when something goes wrong. This includes a calamity of some kind and non-achievement to a specific strategic goal. It is at this point that risk management becomes synonymous with good corporate governance and value creation, because nothing has been left to chance.

Risk management – a permanent part of the business planning cycle

An organisation's strategic plan, with its mission and vision statements, sets the framework for its business planning cycle. Depending on the organisation and its goals, the cycle could be for any duration.

Whatever the duration of the cycle, it is important that the strategic goals of the organisation are clearly identified and pursued throughout the business cycle. The focus of the business planning will be on processes that assist the organisation achieve its intended outcome or set of outcomes both in the short and longer term. There should be a close relationship between an enterprise's mission or strategic objectives and the management of all the risks to which it is exposed.

It is essential that an organisation is able to ensure a continuity of process regardless of the likelihood of threats impacting on the business. A good business plan will identify future opportunities as well as the major critical weaknesses of the organisation.

A risk management plan leads to the development of risk minimisation strategies. As an adjunct to this, it will be important to determine whether the risk minimisation strategies developed adequately tackle the size of the risk. Too many controls may make it difficult for an organisation to exploit opportunity. Too few controls may leave the organisation exposed.

Most business plans also include a SWOT analysis. A SWOT analysis ensures that the organisation's strengths, weaknesses, opportunities and threats are understood in terms of being able to achieve the specific objectives of the business plan. A SWOT analysis complements the wider risk management planning process but it is also subordinate to it.

Relationship of risk management to business planning

A good business plan will be based on a corporate governance framework that ensures good business practices through stewardship, leadership and control. The business plan will establish at the outset cohesive policies and procedures to ensure that risks are managed and that business objectives are met efficiently and effectively, having regard to the requirements of the organisation's governance framework.

Risk management is most effective when the corporate culture encourages every individual to play a balanced role. They should be aware of risks and bring significant risk issues to management's attention – and simultaneously be entrepreneurial and innovate when risk offers an opportunity for substantial rewards (Source : Price Waterhouse Financial & Cost Management Team, CFO – Architect of the Corporation's Future, Price Waterhouse 1997.

The following diagram illustrates the relationship of risk management with the other areas of the business planning process.

Business planning and risk management should not be separate activities. Action plans to manage risks and enhance opportunities should be developed and incorporated into business plan reports and kept regularly up-to-date. In most cases, these action plans will provide the basis to improve business or process opportunities.

As part of the business planning cycle, key activities are also usually identified for inclusion into an organisation's audit program. Risk management will help identify these key activities and determine the adequacy of current controls. It also enables new controls to be implemented if necessary.