Why We Need To Talk More About Risk Management

In 2020, the topic of risk management has come to the fore. Here are the main reasons we need to talk about risk management more often. 

In 2020, the topic of risk management has come to the fore. Companies are worried about how the ongoing crisis and political issues will eat into their revenues over many years. Some believe that the good old days are well and truly behind us and that we’re moving into a new dark age. 

Risk management, though, is about more than these massive macro trends. It’s also about limiting the day-to-day dangers that companies face, both from their immediate rivals, the government, and their own employees. 

Here are the main reasons we need to talk about risk management more often. 

It’s Essential For Profitability

Companies can ignore the risks that they face and remain profitable over the short term. But if they attempt to do so over many years or decades, they’re playing with fire. Eventually, something will go catastrophically wrong, and they’ll be left to finance the clean-up operation.

We’ve seen many companies suffer extensive damage throughout history thanks to preventable or manageable risks. For instance, Bear Stearns went out of business because managers didn’t take the risk of mortgage-backed securities seriously. Similarly, oil giant BP didn’t take sufficient time to inspect its drilling equipment’s safety, leading to the New Horizons disaster. 

Today, companies take two approaches to managing risk. The first is taking out insurance. Business coverage through Simply Business, for instance, can reduce many of the common legal and financial threats that companies face. 

The second is to enact company policies that reduce risks. Things like investing in cybersecurity, and having a backup plan in place can help tremendously. 

It Improves Customer Service

Risk management is also critical for improving customer service. Professionals in this arena will often talk about the importance of conducting strengths, weaknesses, opportunities, and threats analysis of competitors. The ostensible reason for this is to help shore up the bottom line. But when you think about it more carefully, you soon see that it’s all about improving the customer experience. You’re making changes to your company that differentiate you in a way that assists clients. 

It Helps You Take A Long-Term Perspective

Focusing on quarterly results is important in the business world. Investors want their returns to pay off now. But when you adopt a risk management perspective, you immediately start to consider the long-term. A strategy might seem like a good idea in the short-term. But it is only when you observe the long-run implications that you can work out whether it is a good idea or not. 

Risk management actually helps to build investor trust. When you take the long view, you keep average yearly returns high, even if things are bumpy from quarter to quarter. In effect, you prove yourself. Even if you incur costs today, it means that you’re protecting your profits in the future. And that can only be a good thing. 

It Gives Your Employees Confidence

Nobody wants to feel like they’re stuck on a train running out of control. Risk management sends your employees a message that you take the survival of your company seriously.