The Importance of Risk Management
All businesses need to assume a certain level of risk in order to make money. However, if not undertaken in a controlled manner, threats might be overlooked or not considered when making decisions. In such circumstances, a business will be unaware of the risks it faces, the probability of them occurring and the consequences if they do. It will then be exposed to unplanned and potentially unwanted events that could have a detrimental impact on its financial position, reputation, stakeholder relationships, etc.
Risk Management Process
A risk management process will reduce this exposure. The first stage is to undertake a full risk assessment across the whole business. The aim of this is to identify and evaluate potential threats and weaknesses. The next step is to assign an owner for each risk, who will agree and oversee mitigating actions, together with an implementation timeframe. This step will either lower the possibility of the risk crystallising, or reduce the impact of the risk, should it occur. At the end of this process, the business will have a robust risk management plan.
A risk management exercise also often identifies business improvement opportunities, such as ways to improve operational efficiency. At the very least, the business will know its risks, whilst its competitors may not. This might present a way to differentiate itself and improve its reputation with customers, plus other external contacts. Therefore it should not be viewed solely as a defensive mechanism.
As with any process, it is vital to embed into daily operations and use as an ongoing tool. In this way it will always be up-to-date.
How We Can Help
Drawing upon experience acquired from working within the internal audit function for a large corporate, which has also been applied within small and medium enterprises, we can work with management and/or owners to identify the risks facing their business and the likelihood of occurrence, as well as preventive or mitigating measures. The result will be a business-wide risk assessment plan that can be maintained as the company develops. The existence of such a document will also be a valuable tool to present to potential lenders when applying for finance.