Why risk management is essential to every business

Why risk management is essential to every business

Poor risk management controls can destroy even the largest and most successful companies. Enron, Arthur Anderson, and Barings Bank are three well-known examples from the late 20th century that have influenced modern risk management. These are three examples from the late twentieth century that have driven modern risk management. As a result, this discipline is sometimes considered a specialty, but fundamentally risk management is something we all do every day in our personal and professional lives. Whether we are crossing the street or signing a multi-million dollar contract, we weigh risk against reward. Often, this process happens unconsciously: when we walk to the crosswalk, the risk decreases, but when we walk across the street, the reward increases because we get to the other side faster. Understanding the nature of risk Formalizing your company’s risk management process benefits you in two ways. First, it helps you identify risks that you might not otherwise have been aware of. Second, it gives you a framework against which you can evaluate risk and make the right decision to balance risk and reward. Risk is often perceived as a bad thing, but risk also presents opportunities. The most successful companies are those that have taken risks, such as expanding into an evolving market or embracing a new technology before their competitors. Everyone is a risk manager Even if there is a manager in a company who is responsible for “risk management,” that person is only a facilitator. In reality, risk management is part of everyone’s job, from the CEO to the cleaning staff. That’s easy to say, but without investing in formal risk management training, it can turn into a lot of empty words. Today’s eLearning solutions make risk management training far more accessible than it was a decade or so ago. Back then, training was typically delivered to middle managers. They may have fulfilled the necessary requirements from an internal control perspective, but they hardly matched the ethos that everyone should be a risk manager. In the interconnected world of 2021, training can truly be delivered to everyone in the organization. Harnessing the power of risk Ask someone on the street for the definition of risk, and they’ll likely say something like “the likelihood of something bad happening.” This adequately defines the Enron-type examples mentioned above, but it’s only half the truth. Risk can also be described as something good that does not occur. Here, risk can be a source of opportunity. Investing in risk management will help everyone in your organization understand both sides of the risk management coin. Identifying a data security vulnerability and working out the necessary mitigation measures can clearly save a company from potential disaster. However, spotting a gap in the market that is not currently being exploited can also have tremendous positive benefits. Every company is different and faces its own risks. But not investing enough in risk management? Well, that in itself is a big risk, and it’s common to all.