The Importance of Risk Assessment in Business

StrategyDriven Risk Management Article|Risk Assessment|The Importance of Risk Assessment in BusinessRisks are part and parcel of everyday life. You might not realize you’re doing it, but you assess risks throughout your normal day. The risk of it raining and whether you need to carry an umbrella, the risk of getting caught in a traffic jam and being late for work, the risks connected with any investments you make, even the risk of being run down before you cross the street. The business world is no different.

Business risks come in many shapes and forms and can come from both internal and external sources. Externally, there are political issues, interest and exchange rates, new market competitors, and financial risks such as investments. Internal risks include workplace injuries, non-compliance, information breaches, loss of funds through theft and many other unexpected events.
To safeguard your business as much as possible, a risk management plan is vital. Many of the risks a company faces can cost your organization money or result in it closing permanently. With a risk management plan in place you’ll be better prepared for those unexpected events, and able to minimize the risk and extra costs before they happen.

What Does a Risk Management Plan Entail?

Risk management is the process of identifying risks, problems or disasters before they happen. By identifying those risks, you’re able to set up procedures and processes to either avoid the risk altogether, minimize its impact or help your business cope better. Having a risk management plan requires a realistic evaluation of the risk and a plan to deal with it.

Certain questions have to be answered as part of the risk management process. For example:

  • What can go wrong?
  • How is it going to affect your business?
  • What should you do?
  • Should something happen how is it going to be paid for?

For a risk management plan to be effective, it has to have the backing of everyone in your organization, with staff knowing what their roles and responsibilities are and who is accountable. It requires the establishment of policies and procedures with resources and tools made available for the plan. Training, testing, and monitoring of the plan is also essential.

The Benefits of an Effective Risk Management Plan

There are many benefits to having a risk management plan in place. It helps to provide a safe and secure environment not only for your employees but for you, visitors and customers too. People and assets are protected from harm. Legal liability is reduced, and the stability of your operations increases. The threat of possible litigation is reduced. Your risk management plan also helps to protect the environment. When risks are reduced, there are savings in many areas of your business such as time, income, assets, property and people.

Risk Assessment Tools and Software

Thanks to technology there are a wealth of tools and software you can use to make the process easier. There are many other benefits to using RSM or Risk Management Software. To begin with, it helps you identify, manage, and reduce various risks throughout your business. It also helps protect the welfare of employees. Before software came along a company would have to use a paper-based system for assessing risks which were very time-consuming. Using software saves time but also eliminates human error and reduces risk because it utilizes risk formulas. Many aspects of the risk assessment process are streamlined saving time and manpower when compared with more traditional risk management methods.

Risk assessment software can be used across a wide range of industries and while it is very beneficial for the vast majority, there are a few instances where it has not always proved to be quite so successful. One prime example is in the area of bail reform where risk assessment software is being used to determine the pretrial release of a prisoner. You can learn more about it here.

The benefits of using risk management software, however, far outweigh any negative aspects. By systematically identifying and addressing risks, it helps to promote a risk-aware business culture. Throughout the risk cycle, the software allows you to stay organized, input new risks and monitor them regularly. Risks can be prioritized according to an assigned risk score. Throughout each stage of the risk monitoring process, it’s much easier to assign responsibility. Risk management tools also help with risk reporting, analytics and metrics.

Tips for Buying Risk Management Tools

There is a wide range of risk management tools to choose from, but that doesn’t mean they’re all going to be right for your business. The following points should help you pick the best risk management solution for your business.

When you’re new to risk management or risk management tools, it’s vital you do your due diligence research. You should make sure to read as much as you can, especially about the different types of software, talk to your peers and anyone in your network. Before you start speaking to various vendors, it’s important you identify the areas in which you think software is going to help. Don’t just look for cool features. Instead, you need to look for software that is going to assist you in the areas you’ve identified. One last tip is to read as many risk management software reviews as you can. The vendors you speak to are likely to bombard you with technical jargon and the obvious sales pitch, but user reviews cut to the point and will give you a clear picture of the pros and cons of any software.

Risks are an integral part of the business world with organizations of all sizes having to face a myriad of them in their daily operations. Risks include natural disasters, security, compliance, governance, legal, and financial. It would be impossible to avoid all risks entirely, but effective risk assessment can help identify, measure, predict and manage them appropriately. Now you appreciate the importance of risk assessment and how a risk management plan can help your business you’ll be able to weigh up what type of solution is right for your needs.