Risk Management – An Essential Tool for Corporate Success
Risk Management is a defining factor for a number of organisations in maintaining competitive edge. It is an ever-growing concept and its importance is becoming increasingly more emphasised upon. Risk Management is noteworthy for individual investors who may liaise less with others before taking an important business decision.
Successful risk management helps to prevent undesirable outcomes which may lead to unnecessary incurred expenses. This can only take place through a successfully outlined plan of effective Risk Management which is tailor made to client needs. Considering the continuous market changes and recurring economic crises, senior executives are harnessing the importance of integrating Risk Management within their roles. In certain cases, organisations employ people specifically assigned for Risk Management processes and procedures.
The first essential step in managing risk is to assess it. What is the potential impact of risk if taken? What would it cost the organisation not to attend to it appropriately? Categorising the risk is also part of an effective process. A risk may be minor or severe and also either common or rare.
Eliminating risk completely is impossible as that would hinder shareholder value. A good balance must be struck so as to ensure that a business maximises the benefits of efficient Risk Management. Evaluating the organisation’s corporate culture towards risk will help to determine realistic objectives. If an organisation is less risk oriented, more conservative objectives would suit it far better, whilst organisations with more aggressive goals tend to engage in higher risk strategies.
Senior Management must assess whether the objectives set fall within its risk policy to ensure consistency. An example of such a decision would be the consideration of expanding into a foreign market. Some organisations might perceive the move as too risky within certain contexts, whilst others would be willing due to the future return on investment.
Consideration of past circumstances is also a good indicator in determining the appropriate level of risk. It is also important to acknowledge the opinion of key segments such as shareholders and customers prior to taking certain major decisions.
Apart from analysing the corporate culture and risk appetite of an organisation, the risk capacity must also be taken into account. This refers to the maximum amount of risk that an organisation should endure. This is done through careful consideration of company assets, spending capabilities and borrowing power. A thorough knowledge of these processes will help to identify, anticipate and manage risks.
ARQ Group’s Consultants can provide a business with the necessary checks to plan and implement a Risk Management strategy. This is done through detailed analysis and a solutions approach strategy aimed at improving efficiency and minimising costs.
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David is a Chartered Accountant and a Fellow of the Association of Chartered Certified Accounta... More