The Importance of Risk Management

Risk management often comes across as a boring, bureaucratic subject. In reality however, the basic principles and concepts of risk management are of key importance across every business area and sector. Far from an administrative box to be ticked for legal purposes, risk management plays a key role in mapping out an organization’s long-term future.

From efficiency to productivity to cost-effectiveness, risk management has a marked effect on almost everything the business does.

Universal Relevance

Risk is something that routinely goes overlooked in the small business arena. This, despite the fact that smaller and newer businesses face considerably more risks than firms operating at a higher level. Regardless of the size of the business, its primary purpose or ultimate goals, it is fundamentally impossible to rule out risk in its entirety.

And nor would doing so necessarily be beneficial. It is only by taking risks that organisations have the opportunity to grow, evolve and generally improve themselves. Being in business is by its very nature a risk in its own right – the same going for every new product, business model, innovation, marketing strategy and so on.

The key to success lies in identifying, considering and controlling risk where it occurs, which is where risk management comes in. Business size, nature and sector is irrelevant – risk management is of universal relevance.

The Evolution of Risk

Despite most workplaces having adopted strong health and safety cultures, risk is nonetheless intensifying and evolving all the time. Advances in technology have brought along an extraordinary array of new risks – hacking, data theft, identity theft, data corruption, system failures and so on.

Likewise, businesses are routinely held liable for each and every accident and incident in the workplace that results in employee injury. Enormous compensation payouts, criminal charges, reputational damage – every business is constantly under threat from a wide variety of risks.

The Role of Risk Management

In order to fully understand the importance of risk management, you need only consider a scenario where no risk management strategy exists. If risks are not considered and controlled, every threat the business faces is exponentially more likely to become a reality.

If health and safety risk is not considered appropriately, accident and injury rates suffer as a result. If financial risk is not considered, the business is left wide open to heavy loss. If legal risk isn’t considered, laws may be broken and the business shut down. If market risk isn’t considered, the business could become uncompetitive and ultimately rendered unviable.

The list goes on, incorporating every type of risk the modern business faces. Not only this, but without comprehensive risk management it becomes impossible to adequately evaluate opportunities for growth and development. From minor in-house projects to major international expansion, every move the business makes represents a risk to consider and manage.

Effective risk management ensures risks are identified, acknowledge, prioritised and addressed accordingly. Though elimination of all risks across the board is impossible, comprehensive control of risks is anything but.

Accountability

Another strong argument in favour of risk management is the way in which it plays a role in accountability, in the wake of any unforeseen eventuality. Various examples of legal, financial, political and health & safety quarrels can put a business in a position where providing evidence of its approach to risk management is essential. Even in instances where an outcome is negative, being able to prove you made all reasonable efforts to avoid the risk in question can protect the company from harm.

This is only possible when and where risk management strategies of the highest calibre are devised and implemented accordingly. If you are unable to comprehensively demonstrate and prove your risk management efforts, it will usually be assumed that there were no such efforts to speak of.

An Essential Investment

While effective risk management represents an often significant investment of time and business resources, it is nonetheless an investment in EVERY areas of the firm’s performance. Risk plays a role in everything the business does, meaning that so too does risk management.

There’s a lot of truth in the theory that a very fine line exists between risks and opportunities – the two are in many ways identical. Which in turn means that by proactively taking control of risks, you also take full control of all available opportunities.