5 Potential Consequences of Ignoring Business Risk Management
Security • 28th May, 24
All businesses, from startups to well-established ones, face a range of factors that may affect their ability to achieve their mission and objectives. While avoiding risk completely is difficult and often not possible, a variety of risk management strategies can minimize the negative impacts on the business.
To help business leaders understand their risks, four entrepreneurs and risk experts offer their insights into what risk management is and how to plan for risk.
Business Risk Management Definition
The Corporate Finance Institute, which provides training for banking professionals, describes risk management as encompassing “the identification, analysis and response to risk factors that form part of the life of a business.” Simply put, business risk management is the process of proactively addressing the factors that could prevent the business from achieving its goals.
“Business risk management is about taking an outward look toward your environment and an inward look toward your own business to understand what could go wrong and how to prevent it,” says Hind Abdo, who has worked in risk management within financial institutions for 17 years before recently launching her own Montreal, Canada-based firm, Facultas-Risk Consulting, to provide risk management services for small and medium businesses.
Why Is Risk Management Important for Business?
The consequences of ignoring business risks can be costly, ranging from financial losses to business failure. Examples include:
- Noncompliance fines
- Lawsuits
- Theft and fraud
- Loss of sales
- High employee turnover
“Although the outcomes can be catastrophic, the more common implication of ignoring risk is stunted growth in the business,” Davis says. “The positive consequences of having risk management dialed in – to whatever degree you feel comfortable – is the ability to take calculated risk with a more informed view of what the rewards should look like.”
Moon emphasizes that it’s important to not dismiss a risk offhand just because it feels insignificant. For example, one single customer complaint can snowball in this age of social media. “It’s a very competitive landscape and you can’t overlook small things that can lead to bigger risks,” he says.
