6 Steps to Legal Risk Management

Here we will discuss a specific approach to risk measurement, which is a useful model in the legal context. We will impose a mathematical framework on this model for two reasons. First, this is a course on business law, not a course on statistics or probability models, and the joint development of these models would exceed the time available in this course. Second, and more fundamentally, assuming exact probabilities of potential legal events implies a level of certainty that will likely never exist in real life. [1] We also emphasize from the outset that measuring risk with these models in this chapter is a multi-step process. We need to assess the extent to which the underlying model could be adapted on occasion. In addition, we must evaluate each question according to the level of risk that each company is willing to assume in order to realize the profit that each company hopes to receive. Companies need to understand the assumptions behind worst-case scenarios or ruin scenarios, as most companies don`t want to take risks that “bet the house.” To this end, knowing the severity of the losses to be expected in the future is a first step (legal consequences). However, financial decision-making requires us to assess severity based on what a person or company can comfortably handle (attitude to risk or risk-taking). You may feel like you`re navigating uncharted waters as you try to protect your business amid changes caused by global events, digital transformation, new regulations, and other issues. The right legal technology can keep you on track through a wealth of online resources, including practice notes, toolkits, and templates. This can improve your skills by effectively managing and mitigating risk and expanding your role as a strategic advisor to your business.

During this step, your team will assess the likelihood and impact of each risk to decide which one to focus on first. Factors such as potential financial losses to the business, loss of time, and severity of impact all play a role in accurately analyzing each risk. By reviewing each risk, you also discover all the common problems of a project and further refine the risk management process for future projects. First, assess the probability of the event. We will classify the probability as “low”, “medium” or “high”. Much of this course aims to teach you how to categorize potential legal events within this framework. For example, if we look at intellectual property law, you will have an idea of the likelihood of being sued because of the similarity of your trademark to existing trademarks, and if we deal with tort law, you will have an idea of which offenses are common and unusual. We will not use specific probabilities for these events in formal calculations, but you might consider a low-probability event as one that rarely occurs for similar companies, a medium-probability event that has occurred several times for similar companies in the past year, and a high-probability event, because it will almost certainly lead to litigation. Sonia Galindo, former General Counsel and Corporate Secretary of Rosetta Stone, describes how Gartner helped the company strengthen its global risk management strategy.

With this analysis, you can refine the risk register with more definitive areas. Risk analysis is an iterative process. Some risks are removed from the list; some will merge with others; After the analysis, new risks appear. Risk management initiatives often stagnate and stagnate because the company insists on “getting it right,” which means implementing a risk management framework for the entire organization. Enterprise Risk Management (ERM) is a noble and important undertaking. However, this is not an essential starting point. The possibilities for dealing with risks are as diverse as the risks we manage. However, there are several reproducible techniques: Step 1: Find the sources of legal risk. The main sources of legal risk are contracts, regulations, litigation and structural changes.

Step 3: Record the risks in a risk register. A risk register is essentially a list that also captures certain attributes of each risk. First, follow the risk name, probability on a simple scale as an estimate, impact analysis on a simple scale as an estimate, and the combined risk rating on a simple scale. Legal and compliance managers are under pressure from all sides in their legal risk management strategies. Changes in the regulatory environment and risk landscape are constant and unpredictable, as companies make big bets on digital transformation and renew their focus on innovation. Therefore, the consequences of a poor risk management strategy are no longer limited to regulations and fines, but include damage to brand and business growth. Anticipating the potential pitfalls of a project doesn`t have to feel like gloom and disaster for your business. Quite the contrary. Risk identification is a positive experience that your entire team can participate in and learn from. Gartner provides the information, tools, and guidance that legal and compliance leaders need to develop new risk management strategies that effectively reduce the company`s risk exposure without limiting the company`s ability to pursue strategies and achieve its growth goals. For more information, see our white paper: In-House Counsel: How to Understand and Support Your Company`s Risk Tolerance.

Different people and companies may see the above legal risks very differently. For example, some people have nothing against the prospect of personal bankruptcy, and some companies are structured in such a way that they take significant risks. Others see the prospect of being pursued with apprehension. In other words, different people and companies have different attitudes towards the risk-return trade-off. People are risk-averse when avoiding risks, preferring to have as much safety and security as reasonably affordable to reduce their discomfort. They would be willing to pay extra to have the security of knowing that unpleasant risks would be eliminated from their lives.