It’s the obvious question, and the answer is usually simpler than what you might think: Better risk management leads to better business performance. And the business benefits of embracing risk management are stronger now than ever before.
Risk is a tricky thing. Without it, growth is impossible. But it’s not just about taking more risks, it’s about understanding and controlling the risks you take.
The threats that face business risks take many forms, including strategic, operational, financial and compliance risks. Individually or combined, these can jeopardize a company’s financial and operational stability.
First, what is risk management system? and why do I need it?
A risk management system is a methodical approach to identifying and managing the risks that businesses face every day, and an effective way to ensure you are providing a safe environment, protecting the assets, people and reputation of your company
Under workplace health and safety legislations and the common law duty of care, employers are legally required to manage the risks associated with the running of their business. This entails taking adequate steps to minimize reasonably foreseeable risks.
Risk Identification and Evaluation
During the course of their day to day activities, all businesses are exposed to varying degrees of risk. These exposures will vary greatly for each business in terms of scope and severity. The process of risk management is to assist the organisation to balance their risk exposures against business opportunities to achieve corporate plans and objectives.
A total analysis of the risk facing any business is enormous, ranging from such things as incorrect marketing or customer segment decisions, poor financing arrangements, employee disputes and the effects of a major fire or catastrophe.
Some risk exposures can be considered to be fundamental to the overall strategic planning and management control of the business and are generally under the control of the board or senior executives. Performance and ongoing viability of the business can be adversely affected by poor decision making or planning relating to a wide range of these risks.
Other risks can more readily be managed (or partly managed) at an operational level to eliminate or reduce the threat to the business. A final category of risks may be those over which the management and employees of the business have little control, or capability of reducing to any significant degree.
Using the process of Risk Management encapsulated in AS/NZS 4360, an organisation can create a framework to assist in the identification and analysis of the risks specific to its particular business activities.
Avoiding, Reducing and Controlling Risk Exposures
The next step in the risk management process is the balancing of key corporate objectives (like profitability and expense control), against safety, and the avoidance, reduction and control of losses.
The conventional wisdom says that putting an emphasis on risk management slows your business, but based on recent studies the contrary is true: Companies that put a premium on risk management are seeing better growth and increased profit margins.
Companies that put a premium on risk management can cope with ever-increasing business risks while seizing opportunities that present themselves.