Corporate Risk Management – Why It’s Important

3 Mins read

All businesses, large and small, face risks. Whether it be potential problems that can affect the profitability of the business, present a danger to employees, or have the capacity to lead to run-ins with the law, no business is risk-averse.

When it comes to corporations, there can be added consequences when it comes to problems that adversely affect the business, such as upsetting the shareholders.

Let’s take a closer look at corporate risk management, what it is and some things you can do to help manage and minimise risks within your company. 

Understanding Risk Management

As a corporation or large company, if you fail to place an emphasis on risk management and identifying potential problems, you’re leaving your company-wide open to potentially suffering all sorts of issues and setbacks, many of which could be avoided with some due diligence.

Proper risk management is about identifying risks before they occur and putting measures in place to either prevent them from happening or having contingency plans in the event something does go wrong.

Many business owners place great emphasis on things like product creation, marketing, creating a solid online presence and many other important aspects of business, but some fail to really give much thought to risk management.

Even something like having the appropriate insurance cover is a form of risk management.

Look After Your Shareholders

Corporations rely heavily on the investments of shareholders. However, shareholders will only remain interested in being involved in your company if they see consistent returns on their investment. After all, when someone buys shares, not only are they hoping for the price of the shares to increase, they’re also hoping to receive dividends from company profits.

If you and your management team are not diligent about risk management and a major catastrophe occurs, then not only will this potentially reduce your profits, it could cause a plunge in the price of your shares and send your shareholders into a selling frenzy, all trying to get out before they lose too much money. The results of this could spell the death of the corporation as a worst-case scenario.

If you are a public company, then taking care of your shareholder’s best interests is in your best interests as well.

Ways To Mitigate, Minimise Or Avoid Business Risks

Having a risk management plan is essential if you truly want to keep a handle on business risk. Your plan will include identifying potential risks. One way you can determine possible risks in your industry is to research problems that have been faced by other similar businesses or companies. If another company has gone through a difficult time due to a problem that could have been avoided, then this will put your company in a good position, as you can learn from their mistake and avoid the same thing happening to your business.

You might want to seriously consider hiring the services of an experienced risk manager full-time. This way, you can have someone assigned the task of monitoring your business and dealing with risks on a constant basis. Your risk management professional will keep an eye on all facets of business operations, along with liaising with staff regarding potential problems and implementing solutions to avoid anything that could cause danger or affect the corporation’s bottom line.

Purchasing and running corporate risk management software is another important step you can take to minimise risk. The software of this nature is designed with every aspect of corporate risk management in mind.

Some key points to note is that the software can monitor your business, making things easier for your risk manager. The software can even alert the risk manager to potential dangers or problem areas that need attention. You can print reports that illustrate data the software has collected, analyse your business procedures, ensure your company is compliant with industry laws and standards and so much more. It’s well worth the investment when you’re running a corporation and will go a long way towards ensuring your valuable shareholders are happy.

In Conclusion

Risk management is vital for every business, both large and small, but is even more vital if you’re running a corporation. However, with due diligence and armed with the right knowledge and tools, you can keep business risks down to a bare minimum.