In the world of finance, risk management refers to the practice of identifying potential risks in advance, analyzing them and taking precautionary steps to reduce/curb the risk. The global business environment is constantly becoming complex, new models of how to run your small or large-sized business is brought to light everyday by the expects, but what these models do not share light on is the constant risk that every business small or large are prone to on a daily basis in local or international markets. Many local, national and international business owners or corporations succumb to the notion that just having business insurance is good enough, and forgetting that running any type of business has risks associated with it that needs a strategic risk mitigation plan and ignoring these risks or how to mitigate them when they arise has caused many businesses to fail. JFK once said, “There are risks and costs to a program of action. But they are far less than the long-range risks and costs of comfortable inaction”. It’s far better to find out problems before it finds you, and when you identify such problems, having the right action plan always comes in handy. Yes the insurance may cover some of the risks, but relying on your policy alone without a strategic plan to combat such risks undermines your original idea and goal of going into business in the first place, thus, success and maximizing shareholders profit.
Expects in the Risk management industry has strongly echoed the notion that inadequate and poor risk mitigation plans or even no plans are not only reckless on the part of a business owner, but also a quest to throwing away your dreams of running a successful business for the long run because every business be it small or large, regardless of industry are prone to unexpected events that could dramatically raise your cost of operations if not shorten the life of your organization, and in this competitive business environment, Can you afford to take such risk and be less competitive than your direct competitor? Competition is a good; having a business plan is great, but maintaining a carefully crafted risk mitigation plan when your business finds its self in a crisis mode is crucial and it is what will define the faith of your business and whether or not the business can still remain competitive after all the chaos.
Internal and external risks such as accidents in the workplace or fires, tornadoes, and other natural disasters, not forgetting complex legal risks such as fraud, theft, and sexual harassment lawsuits, business practices, market uncertainties, failures in projects, credit risks, or the security and storage of data and records. Do you still think your policy alone without a comprehensive mitigating plan serves you better?
The above stated risks are not only associated to local and national businesses within the continental US market. In today’s global business environment, never has it become more important to consider such risk elements when venturing into international markets. These risks become more eminent once a business makes a decision to go global. Depending on the nature of the business, there are external risk elements like political climate, cultural sensitivity of your niche market, infrastructure compatibility to your business needs— internet and cyber security, industry legal frame-work, Etc. All these factors could have certain imbedded risks that can hinder the growth and success of your business in a particular market.
The awareness of having a strategic risk mitigating plan does not sometimes translate into a proactive action by decision makers in an organization. Among the many reasons why businesses choose not to actively strategize in anticipation of such risks is that, they either fall for the perceived notion that having an insurance policy alone takes care of the problem, and may also feel that it is unlikely that prior events will happen again, or that the effects if they were to occur would not be overly severe or destructive. In conclusion, the primary purpose of this article is to remind organizational decision makers about the fact that poor risk mitigation. Ignorance or mismanagement of risk always does result in loss of assets, shareholders’ investment and one important element— which is loss of reputation or goodwill built over the years. Why come up with a great business ideas, implement it, and set the ball rolling without a strategic risk management plan? Or not thinking you need such plan? Rethink again.