Maybe you’re too busy. Maybe your outlook is “Don’t go looking for trouble.” Perhaps you don’t understand business risk management, and you don’t know if it matters for businesses that aren’t giants.
Just in case you’re not completely sold on the vital importance of sound business risk management for the health of your company, let’s examine some of the potential consequences of just rolling the dice and seeing how it all comes out.
1. Lawsuits
We’ll go ahead and start with the obvious. Failing to ensure your company complies with all laws and regulations can increase the odds of your being sued, whether it’s by an employee, competitor or customer. Part of business risk management involves making sure your company minimizes its legal exposure by following rules.
Of course, you can be sued even if your company complies with both the letter and the spirit of the law, but the odds of the suit’s success may be diminished.
Lawsuits cost your company money, whether it’s from settling with a plaintiff, the cost of legal representation or from actual damages awarded in court. It makes sense to limit the risk of a lawsuit and to reduce the risk of its being successful. Business risk management addresses these concerns.
2. Catastrophic Losses
The failure to adequately evaluate, prevent and minimize damage from business risks can ruin your company entirely.
You could lose market share because you failed to predict the risks of changing conditions.
You could lose enormous investment dollars if you fail to anticipate the risks of expanding your company.
You could suffer irreparable damage to your company’s reputation by failing to prepare to manage difficulties.
Business risk management has serious financial implications. You can have much to gain from protecting your company… and potentially everything to lose by not.
3. Theft
In a perfect world, business risk management becomes part of the corporate culture, infusing every position and every decision. Building in risk analysis, even at the part-time employee level, can demonstrate that you intend to run a tight ship.
Conversely, failing to build risk management into your company can signal a lax attitude. And that lax attitude could be tempting and impossible to ignore for unscrupulous employees.
Unless there’s accountability and responsibility built into your company, you may be at risk of theft from your employees.
4. Failure to Thrive
It may sound counterintuitive, but effective business risk management can help grow your company.
Think about it. You’d be far more likely to jump into a swimming pool if you know the water is sufficiently deep enough to prevent injury. Now that doesn’t mean you can’t possibly be hurt, but it does mean you’re taking a managed risk.
But imagine being on a diving board and having no idea if there’s any water in the pool at all. Would you jump? No!
Assessing risk and taking steps to mitigate risk can actually help make you much more confident. Sure, there’s still a chance you could fail, but you’ve done what you can to improve your chances of success. If you fail to manage your business risks, you’re jumping blind… or not jumping at all. Managing risks can help you make the most of opportunities you’d miss if you were paralyzed by fear.
5. Lack of Transparency
Transparency both requires and creates mutual trust, a key component of a company culture that’s genuinely engaged.
When a company integrates business risk management into multiple aspects of its operations, it creates transparency—an acknowledgment that risks exist and the company and employees have a responsibility to mitigate them.
But if risks are ignored—or worse, hidden from employees—then business owners could miss out on vital contributions from staff. It can also create barriers between themselves and staff. These opaque barriers don’t build trust. They don’t bring employees on board with the notion that business risk management is everyone’s job.
The most successful business risk management is a holistic approach, one that suffuses company culture, one that recognizes the vast benefits of assessing and managing risk and one that sees the potential risks of failing to address the threats to a business. Quite simply, you can’t afford to ignore risk management.
