Risk is part and parcel of human life, and so is the case with the risk involved in various business ventures and deals. It has been often quoted that “The biggest risk is not taking any risk at all”. It surmises that risk, regardless of any situation, is always going to be present. In such a scenario, managing such risk becomes of paramount importance rather than reducing the risk. Black swan events may always occur, and any or all attempts to reduce the risk may fail, but risk management will still be a saviour in such situations.
Why is Risk Management critical?
It is the key to survival.
One of the crucial and underrated aspects of Risk Management is that it provides the chance and the ability to survive. Most businesses and entrepreneurs want to make it big, but they underestimate the importance of survival to make it big. Nearly 6.5 million businesses are launched every year, and yet around 22% of them fail in the very first. Risk Management allows the other 78% to survive and have another opportunity.
It makes it possible to fight another day.
Thanks to recommendations by firms offering risk advisory services, organizations have begun to adopt enterprise risk management to counter business threats. Enterprise risk management involves identifying threats of multiple types, including financial, operational, legal, strategic, technological, geopolitical or environmental. By combining risk management and business continuity management, an organization improves its chances of managing enterprise-wide risks.
Thus, organizations would be prepared to deal with threats and improve their chances of survival.
It improves decision making.
Emotions play a huge role in any aspect of one’s life but even more so when it comes to money or finance coming into the picture. Risk Management techniques would ensure that the entrepreneur or the business’s management does not take any emotional decisions.
Risk Management through risk advisory services would generally involve preparing set rules and practices under various scenarios. Since the rules and actions are predefined, the chances of taking wrong decisions due to emotions are reduced and result in improved decision-making.
Protects the reputation of the brand.
One of the least discussed but most damaging aspects of an organization’s wrong decision is the harm to its reputation in the business circle. The impact on the brand reputation or image has a long-term effect that might not be often visible in the short run. Such an impact could include loss of loyal customers, decrease in trust in the brand, and vendors demanding changes in terms of business.
Risk Management ensures that any damage caused by a wrong decision is minimized and allows the company or the brand to regain lost ground. Risk advisory services do include not only risk mitigation techniques but also risk-minimization in case an unfavourable event does occur.
How should an organization approach risk management?
Risk Management is almost all about ensuring that the key goals and the objectives of the organization are met with the least possible hiccups. A risk advisory firm identifies all those areas which could pose a risk to an organization and devises multiple strategies to counter that risk.
There are four primary types of risk mitigation strategies — risk avoidance, risk transference, risk acceptance and risk limitation. A risk advisory firm may recommend incorporating any or a combination of these strategies.
Risk Management should be integral to an organization’s strategy to ensure that an organization survives in the long run. While risk is an inherent part of any business, risk management is the difference between a Lehman Brothers in 2008 and a JP Morgan or other survivors.
Conclusion
Risk Management is one of the most important aspects of a business plan for any company. Through risk advisory service providers, Businesses can ensure that they survive long enough to implement their plans and achieve their goals. In India, firms such as Dewan P.N. Chopra & Co, BDO India, Grant Thornton, etc., provide such risk management and advisory services to alleviate any prominent threats and challenges.