8 reasons why risk management is important to your business

In business, as in life, it isn't a matter of if you'll make decisions, but whether those decisions will turn out in your favour. Some choices are fairly routine in nature, while others are quite significant. The magnitude of each often aligns with their level of risk.

Risk management can help you identify what those threats are in the short and long term and how you can go about mitigating them

Here are eight reasons why it makes sense to leverage risk management planning in the course of running your daily business affairs.

1. Can save you time and money
Perhaps you've decided to buy a new piece of equipment that will help expedite production and optimise your supply chain. That's all well and good, but there is always the possibility that said equipment will break or require repair. Without a back-up plan to account for such a scenario, malfunctioning equipment can lead to productivity losses. In this scenario, risk management entails evaluating the costs and benefits of investing in equipment and how to adjust when key pieces of machinery go offline.

2. Increases efficiency
A component of risk management planning entails going over what a typical day is like in your office, warehouse, factory floor or work site. In the course of this review, you and your risk manager may identify processes that are superfluous, overly complicated or inefficient. If it continues, it could lead to supply chain issues that you hadn't accounted for. Value stream mapping can help identify workflow inefficiencies and how to overcome them.

3. Reduces work-related injuries
Every year, on average, over 500,000 people in Australia are injured on the job, according to the most recent figures available from the Australian Bureau of Statistics. More often than not, these accidents were entirely avoidable.

"Safety first" isn't just a slogan – it should be a way of life, especially if you're in an industry in which injuries tend to be common, such as construction, warehousing, machinery and industrial factory settings. Risk management helps to identify current and potential hazards and puts the systems in place that can effectively mitigate them.

4. Decreases legal liability
Regardless of the industry in which you specialise, there are likely numerous rules and regulations in place. Your job is to adhere to these directives to be in compliance with the law. However, it's highly possible that you may not be doing so, albeit perhaps unwittingly. Risk management planning can serve as an internal audit to ensure that you're abiding by what the law requires with regard to your processes, policies and hiring practices.

5. Enhances customer satisfaction
The overarching goal of risk management, aside from mitigating risk, is improving business operations. When work processes are producing positive results, everybody wins, most especially the customer, who receives a better product or service and is more likely to become a repeat customer. Satisfaction is what every business owner strives for and risk management planning can lead to more customers singing your praises for a job well done.

6. Establishes expectations
The decisions you make in business are rarely binary in nature; they can lead to one of any number of possible outcomes. While some say that it's best to not have any expectations at all, this often isn't realistic in business affairs – not when money, time, effort and individual stakeholders are all involved. Risk management planning can help you evaluate all the possible scenarios that may occur and what you need to do to adjust for those possibilities. It's a way of ensuring you're always engaged in how your business proceeds.

7. Increases communication
Ongoing communication may be the one thing that every industry shares in common. There isn't a single one in which it's not vitally important to assuring that processes go smoothly. Risk management planning enhances communication because it allows you to recognise and evaluate all sides of an issue, so you can better inform the people who have a stake in the outcome of these varying perspectives.

8. Makes success more readily achievable
Whether you're in marketing, manufacturing, health care or any other line of work, the goal is to get something right on the first try. This isn't always realistic, but risk management planning helps to increase the odds by identifying what obstacles are in place and how they can be overcome. Ultimately, risk management planning allows you to be more thoughtful so initial efforts aren't wasted.

At WMC Accounting, we're so much more than numbers. Aside from tax and accounting services which we're primarily known for, we also provide risk assessment services that can help protect you from vulnerabilities inherent to your industry. This includes developing a risk strategy after identifying what threats exist. Contact us today to learn more.