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How Risk Management Can Impact Different Business Functions
March 2, 2023
Risk management is an important part of ensuring your business is a success. As the old saying goes, failing to prepare is preparing to fail – and risk management allows you to outline the risks and strategies in the event they come to fruition.
But even risk management itself comes with certain risks of its own, particularly if not done correctly. In this article, we’re going to take a look at how risk management affects different business functions, including the costs and resources required, how it can impact operations if done poorly, and how it can benefit your business when done well.
What is risk management in business?
Risk management is a process that businesses use to understand the risks they face. These risks can come from a variety of sources, including financial, social, legal, technological, strategic, workplace hazards, or even natural disasters.
The process allows businesses to identify, understand, control, and strategise so potential risks can be reduced or in some cases eliminated. And if those risks do come to fruition, risk management can help apply fast and effective solutions so the issue has a minimal impact.
Regardless of the industry your business operates in, there will always be risks, whether large or small. When undertaken well, risk management can help assure the financial and operational future of your business.
What is the impact of implementing a risk management plan?
A solid risk management plan should be an integral part of planning the future of your business. Unfortunately, that does mean investing time and resources into ensuring it’s as thorough as it can be – there is no template you can use as risk management isn’t one-size-fits-all.
When putting together your risk management plan, you’ll need to ensure you invest appropriately. You should make sure that::
- You budget enough time so your plan can be comprehensive and doesn’t cut corners.
- You engage stakeholders throughout the process.
- You’re prepared for any costs involved with implementing solutions. This may include new technology, new processes, or potentially new employees.
- You’ll need to open honest and regular communication with employees across the business so they can collaborate on the implementation of your plan.
- Additional processes may lead to an increase in operational costs.
- Monitoring and reviewing the impact of your plan so you can make ongoing improvements. You’ll also need to constantly identify new and evolving risks as your business grows.
- Keep records of all policies and processes and use them as guidelines – this includes during onboarding for employees new to your business.
How it can slow down day-to-day operations
Once you’ve identified risks to your business and implemented new processes and procedures, there’s a risk that you could negatively impact your day-to-day operations.
While the goal of a risk management plan is to protect your business, you need to ensure that it doesn’t affect your efficiency or productivity.
One of the most important aspects of implementing a plan is communication. Without clear and open communication you risk misunderstandings and misinterpretation. It’s also important to outline why a new process has been established – this can prevent employees from not adopting new best practices. If employees are finding workarounds then it means you haven’t prevented risk – in fact, you may have simply created new ones.
This is why the solutions you devise should be easy to follow and tightly streamlined. Complex processes will slow down your operations, which will impact your output. As a result, this will not only lead to unhappy customers, but your revenue could take a hit, as well the confidence and morale of your workforce.
That being said, in some instances, an impact on the efficiency of your operations may be unavoidable following the implementation of your risk management plan. However, it’s important to compare this to the cost you may face in the event of a catastrophe that could have otherwise been avoided. And these costs aren’t just time or money related but can have a serious effect on your business’s reputation.
How effective risk management can benefit your business
While the productivity of your business may take a hit in the short term while it adapts to new ways of working, the overall benefits are worth it. Strategising for how your business will respond when issues arise, and implementing new processes to reduce the risk of them happening to begin with, will help your business function should the unexpected happen.
This will ensure smoother operations and fewer issues, which will improve results. This is because your business isn’t relying on being reactive, and instead has a proactive plan to boost productivity.
Effective risk management protects everything about your business. From your assets to your employees, it ensures your business is prepared for all eventualities. From data breaches to earthquakes, you’ll be in a position to work through any issues that may arise.
What is the role of risk management?
The role of risk management isn’t to add a layer of complexity to how you work for the sake of ticking a box. It’s about adapting how your business operates to improve processes, reduce risks, increase efficiency and productivity, and ultimately, make more money.
Being aware of the risks means you can be proactive, and when you’re proactive you give yourself the knowledge and tools needed for performance and growth.
One aspect of a risk management plan is having the correct insurance because even if you have the most meticulous plan in place, unexpected issues can still arise. However, with the right plan in place, your business can continue to operate with little disruption. Your insurance is then there to protect the future of your business from a financial and reputational point of view.
Protect your business with our small business insurance – get a free quote today.
