Every company faces dangers that can jeopardize its success. As business owners, we are all too aware of the operational and financial risks we face, as well as strategic risks like a new competitor entering the market. All too frequently, risk is something we try to avoid or respond to.
However, organizations that are truly agile view risk management as a key component of their corporate strategy. Being proactive, risk management enables you to recognize the potential occurrences that might have an influence on your company. Additionally, it makes it more likely that your company's goals will be accomplished successfully. Here are some ways risk management can increase revenue, from preserving your reputation to fostering resilience.
How risk management improves profitability
Risk management can help profitability in a number of strategic ways.
Improving efficiency
By being unprepared for risk, your best people can be drawn into those reactive, firefighting issues, diverting them away from your core business objectives. For example, if a product is delivered late to a customer your account managers will be diverted to dealing with the crisis in order to protect your reputation, rather than on building their reach within the customer to gain additional new business contracts.
Reducing costs
Risks can also give rise to unexpected costs. They often bring with them the need to pay your staff overtime or buy in expensive expertise at short notice to resolve the issues.
Enhancing stakeholder confidence / protecting reputation
Understanding the potential risks that may impact your ability to deliver a product, service or project means you can set realistic expectations on the delivery date and the cost.
All businesses are part of a supply chain and each link exposes your business, suppliers and customers alike. You can increase your competitiveness and profitability by being able to demonstrate your risk management processes and capability, especially when working with major organizations or within the public sector.
Building a risk management mind-set
So how do you go about shaping a risk management strategy for profitability? As business owners, change is a constant – and a major cause of risk. Your market place, competition, people, finances – organizations need to constantly test their resilience to change and question assumptions they have made which might reduce their ability to respond to any change.
Leading profitability
When it comes to ensuring risk management is supporting profitability, delegate ownership to a team member. This should be someone in the management team who has the ability and respect to step back and be the devil’s advocate. Operations directors work well. It’s best not to go with an MD or CEO as they can have the tendency to be over-confident about the accuracy of forecasts, and at times, over-optimistic about the ability to manage the risks.
It’s about having accountability for identifying things that go wrong, being prepared to ask the awkward questions and challenge pre-existing assumptions made.
Ultimately, risk management is most effective when it is a continuous and disciplined process that becomes business as usual. When utilized in a proactive way, it avoids the need for time-consuming and costly crisis management, instead leading to greater resilience, stronger reputation, more effective business outcomes and ultimately, greater profitability.
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