Poor risk management controls can destroy even the largest and most successful businesses. Enron, Arthur Anderson and Barings Bank are three high profile examples from the late 20th century that have driven modern risk management. As such, the discipline is sometimes seen as a specialist subject, yet at its heart, risk management is something we all do every day in both our personal and professional lives.
Whether we are crossing the street or signing a multi million dollar contract, we are assessing risk versus return. Often, that process is performed subconsciously – walking to the crosswalk reduces the risk, but running across the street directly increases the return by getting you to the other side faster.
Understanding the nature of risk
Formalizing the process of risk management within your business brings benefits in two distinct ways. First, it helps you to identify risks of which you might not otherwise have even been aware. Second, it gives you a framework by which to assess the risk and make the right call on balancing risk and return.
Risk is often perceived as a bad thing, yet risks also bring opportunities. The most successful businesses are ones that took risks, perhaps by expanding into a developing market or taking a punt on emerging technology before their competitors.
Everyone is a risk manager
While a business might have a manager responsible for “risk management,” that person is just a facilitator. In reality, managing risk is part of everyone’s duties, from the CEO to the cleaning staff. That’s easily said, but without investing in formal risk management training, it can turn into just so many empty words.
Today’s e-learning solutions make risk management training far more accessible than it was a decade or so ago. Back then, the training would typically be delivered to mid-level management. It might have checked the necessary boxes from an internal controls perspective, but it scarcely met that ethos of everyone being a risk manager. In the connected world of 2021, training really can be delivered to everybody in the organization.
Leveraging the power of risk
Ask someone on the street to define risk, and they will probably say something like “the chance of something bad happening.” That adequately defines the Enron type examples from earlier, but it is only half the story. Risk can also be described as “something good not happening.” It is here that risk can be a source of opportunity.
Investing in risk management will help everyone involved in your business to understand both sides of the risk management coin. Identifying a data security vulnerability and crafting the necessary mitigating controls could clearly save a business from potential disaster. But spotting a gap in the market that is not currently being exploited could have an enormous positive benefit.
Every business is different and faces its own distinct risks. But failing to invest adequately in risk management? Well, that’s one big risk in itself and it is common to all.