What is risk management?

Risk management constitutes an essential and fast-evolving aspect of an organization’s operations. The process involves the systematic undertaking of identifying, evaluating, and managing financial, legal, strategic, and security risks that could impact an organization’s capital and earnings. To put it simply, risk management is about weighing up the chance of an undesirable outcome occurring due to a particular action, activity or choice.

Organizations manage risks by enforcing frameworks or policies, procedures and controls through careful planning and regular reviews. While it is nearly impossible to eliminate risks completely, organizations are expected by regulators to create a risk identification process on an enterprise-wide level and develop a standardized methodology to set controls and address root causes to stay ahead.

Why is risk management important?

Risk management is important because it ensures the protection of an organization’s assets, the continuity of business operations, and financial stability, while also safeguarding its reputation, enabling regulatory compliance, guiding informed decision-making, fostering innovation, and instilling stakeholder confidence. By identifying, assessing, and mitigating potential risks, organizations can allocate resources efficiently, sustain long-term viability, and navigate uncertainties effectively, ultimately contributing to their overall success and resilience.

If by chance an organization is caught off guard by an unforeseen macroeconomic event for example, the outcome can range from minor additional overhead costs to a significant financial burden.

Risk management provides organizations with a solid foundation upon which they can make informed decisions and prevent serious ramifications that may arise from unexpected eventualities. Once a risk has been identified, organizations can easily address and mitigate it.